Orders of the Day — Financial Services and Markets Bill

House of Commons, 27 January 2000.

THE FINANCIAL SERVICES AUTHORITY

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 19, in page 196, line 24, at end insert— (aa) a chief executive; and".

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following amendments: No. 20, in page 196, line 41, leave out "Authority" and insert "Treasury". No. 54, in page 197, line 8, at end insert— (aa) reviewing and approving the Authority's annual budget of income and expenditure,". No. 21, in page 197, line 10, leave out "and". No. 22, in page 197, line 13, at end insert— ";and (d) providing an independent perspective on the overall running of the Authority, scrutinising and monitoring the approach of its executive management, the Authority's performance and its standards of conduct".

David Heathcoat-Amory (Conservative, Wells)

This group concerns the powers of the chief executive and chairman and whether they should be combined or separated. The amendments also make provision for changes in connection with the non-executive directors. The Bill gives statutory backing to the Financial Services Authority, which relies in most cases on powers derived from the Financial Services Act 1986. The FSA can rely in some respects on more recent legislation such as the Bank of England Act 1998, which provided for banking supervision to be given to the FSA. In many respects, the Bill gives statutory backing to an authority and concentrates executive authority in a way not seen before in regulatory legislation. The FSA will not only be a strong executive body but will make rules that will have the force of law. Those rules will be consulted on and I am sure that the FSA will not bring them forward without proper care and attention—but Parliament will be delegating that rule-making and, in effect, law-making process to another body. We ought to be careful of the conditions under which we do that, and need to put checks on any abuses that could occur. The FSA will also enforce its rules. It will investigate breaches and discipline those found to be breaking them—if necessary with large fines. The authority's power to fine will be unlimited. The FSA is not part of government, so not directly accountable to the House. It is a private company limited by guarantee but has statutory functions conferred by the Bill and other measures. The authority enjoys a considerable degree of statutory immunity, which we shall debate in due course. Even from that brief and inadequate description of the FSA, it is clear that its accountability is an important issue. The authority must be accountable to the market it serves; to those who have paid its expenses through the levy; and to consumers and Ministers—and it must be accountable at law. One safeguard is to ensure the correctness of the FSA's internal management structures—the powers of the directors and chairman and their relationship with each other and the outside world. 1.45 pm The amendment provides for a separate chairman and chief executive. It has been pointed out that good corporate governance now requires the separation of chairman and chief executive. That was a recommendation of the Greenbury committee, and is still accepted to be how large public companies should be structured. Against that, it is said that the FSA is not a commercial company in the normal sense of the word. It is a company, of course, but it certainly does not have normal shareholders. On the other hand, many public bodies do have different chairmen and chief executives, the BBC being one. We can all be grateful that there is not a concentration of power in a single person at the BBC. Instead, the director general is, in some senses, accountable to the chairman and the governors. A number of regulatory agencies are similarly structured—the Environment Agency, for example, has a separate chief executive and chairman. Against that, it has been argued fairly that most foreign financial regulators have combined the two tasks of chairman and chief executive. However, not many overseas regulators have brought together so many powers in one body. It is comparatively unusual for banking supervision to be conducted by the same body as regulates the rest of the market. Clearly, the debate could go to and fro almost indefinitely, and I am not sure if the issue can be decided in that way. I prefer to look instead and be influenced by more long-term considerations about how the FSA should be run. Also, we should not be too influenced by any particular holder of the office. Howard Davies is the present executive chairman of the FSA. I have a high regard for him, and it is no criticism of him that we believe, as a development in the longer term, that the roles should be split. That was the recommendation also of the Joint Lords and Commons Committee which examined the issue last year. I emphasise that we are legislating for the longer term. People come and go, personalities change and the regulatory environment alters. We must set up the necessary internal checks and balances to prevent any abuse of power, while ensuring that the FSA is a strong and effective regulator.

Jim Cousins (Labour, Newcastle upon Tyne Central)

It seems from the amendment that what is being sought is for the chief executive to be appointed as a member of the governing body by the Treasury. Is that seriously what the right hon. Gentleman intends?

David Heathcoat-Amory (Conservative, Wells)

Absolutely. The chairman is appointed by the Treasury at present, so the chief executive should be. The hon. Gentleman has interpreted the amendment correctly. I was about to refer to the powers and role of the non-executives; it would enhance their role if they came under a non-executive chairman. That is an important part of the thinking behind our amendments. In other amendments, we want the Treasury, and not the FSA, to appoint the members of the non-executives committee.

Liz Blackman (Labour, Erewash)

Would the amendment not split the role as soon as the Bill is enacted and not in the long term? Is the right hon. Gentleman not arguing against his original point?

David Heathcoat-Amory (Conservative, Wells)

As I have said, it is not my intention to do anything to change the position of the current chairman, who has another two and a half years in the job. If the Government accepted the amendment, I am sure that they could devise a form of words to give clarity to the thought that the proposal is for the longer term and would not upset the present managerial structure as it affects the chairman. I conclude by dealing with the role of the non-executive directors. The other amendments in the group are designed to give them and the committee of non-executive directors the additional and stronger functions that they need. Specifically, they should be given the tasks of reviewing and approving the annual budget and of explicitly scrutinising and monitoring the executive management. As the Bill stands, they have several specified functions, but they are somewhat insipid. I contrast the wording in the schedule with what the FSA believes non-executives should do in the rest of the market. Consultation paper No. 35 helpfully lays out what it believes they should do. Their role should include assisting their executive colleagues within the firm's governing body in setting, and monitoring, the firm's strategy; providing an independent perspective to the overall running of the business, scrutinising the approach of executive management, the firm's performance and standards of conduct". That is a fairly good description of what non-executives should do and it should be reflected in the functions required of the FSA's non-executive members. The amendments would bring the Bill's wording into line with the FSA's view of what non-executives should do. I hope that I have said enough in this brief introduction to give our thinking about the roles of chairman and chief executive and to put that in the context of what we believe non-executives should do when they are headed, as they should be, by a non-executive chairman.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

I call Mr. Jim Cunningham.

Jim Cousins (Labour, Newcastle upon Tyne Central)

rose—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

I apologise to the hon. Gentleman. I got his name right earlier, so there is no excuse for getting it wrong now. I call Mr. Jim Cousins.

Jim Cousins (Labour, Newcastle upon Tyne Central)

As long as you do not compare me with our famous mouse, Mr. Deputy Speaker. I shall be very brief in urging Ministers to resist these strange amendments. Their ostensible purpose is to ensure greater accountability to the markets and an independent voice in the FSA. However, the means that they adopt to achieve that objective would increase the Treasury's power of appointment. That cannot be sensible. It cannot be right that the post of chief executive should be set up as a Government appointment on the FSA; nor is it right, as one amendment suggests, that the members of the non-executive committee, which has the scrutiny role, should also be appointed by the Treasury. It is absurd that the Opposition should move an amendment that increases the Treasury's power of appointment over the FSA. If their objective is—I can see why it might be and I have some sympathy with it—to strengthen the FSA's accountability to the markets, then the amendments are wholly misconceived.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I ask the Government to think again on the amendments. They are not about personalities. Howard Davies is widely respected; much is hoped from him and will, no doubt, be delivered. However, history is littered with errors made under the aegis of distinguished, able and well-thought-of people; what is important is to get the structure right in the first place. The Greenbury report stated that large commercial organisations should have both a chairman and chief executive. There are fundamentally good reasons to have two people at the top, one with the executive role and the other with the non-executive role of chairman. The post of chief executive carries enormous power and responsibility; it is therefore a function that one is happy to see Howard Davies performing. However, where there is both a chairman and a chief executive, the latter has the opportunity to consult the former. In addition, there are greater opportunities for the world at large and those who are regulated to approach the chairman. It is difficult to make suggestions directly to someone who is doing his best as chief executive at a time when the going is rough and the climate hot. When the chief executive is embroiled in controversy, it is difficult for him to listen as open-mindedly as a chairman can. The chairman has the advantage of being one step back, as well as one rung above. That is a valuable structure, recognised by Greenbury, from which the FSA would benefit. The same reasoning underlies our amendments dealing with the role of the non-executive directors. A problem at which I hinted during our debate on the order of consideration is that the Bill is inclined to be far too restrictive in terms of the accountability and the opportunity for supervision of the FSA, and of the accountability through the FSA of the Government of the day for the general good management of our financial services industry. Those elements will be strengthened if the role of non-executive directors includes the power to give an independent overall perspective on the running of that enormous institution.

Liz Blackman (Labour, Erewash)

Would not the proposals create duplication? Is not what the right hon. and learned Gentleman describes the board's job? Are not non-executive directors members of the board?

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I am not sure whether duplication would result. However, reading the parts of the Bill that our amendments would amend, especially schedule 1, it is striking that the functions of the non-executive directors are deliberately boxed in, largely confined to matters of financial efficiency. I want their role to extend beyond such matters, to that of providing an overall perspective. I cannot imagine that there will be any objection in principle to the amendments. This debate offers the Government an opportunity to change their mind here and now, or to set the scene for the debate in another place, where such matters will be carefully scrutinised. Our proposals in respect of the chairmanship and the role of non-executive directors are thoroughly sensible and constructive. I hope that they will find favour.

Tim Loughton (Conservative, East Worthing and Shoreham)

I echo the comments of my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell). The amendments in respect of the role of the board, especially the chief executive and chairman, are in no way personal to Howard Davies. Everyone who has followed the Bill and dealt with the FSA will have great respect for the job that he is doing and the amount of work that he is putting into it. It could be said that he is already doing the jobs of two men—or two women—and I calculate that he is being paid the equivalent of the combined salaries of the Treasury Ministers now present to do them. We are not arguing with the person now in the job. However, the point of principle goes to the heart of our problems with the thrust of the Bill. That is why we laboured it greatly and, I think, usefully in Committee. As we know, Howard Davies's contract comes to an end in July 2002. Before or after that date, we may or may not be dealing with a different head of the Financial Services Authority. That is one of the reasons why the report of the Burns committee clearly and unequivocally, and with no objection, as I recall, from the members, recommended that the post of chairman and chief executive be separated and that a non-executive chairman be appointed. That is clear in black and white and there was no dispute about the recommendation at the time. 2 pm I hark back to the comparison with good corporate governance, which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) mentioned, and the terms under the Cadbury recommendations that there should be a clearly accepted division of responsibilities at the head of a company which will ensure a balance of power and authority such that no one individual has unfettered powers of decision. We are dealing with an immensely powerful body—some of us might say too powerful—the head of which, inevitably, can wield a substantial degree of power. The FSA annual report boasts that the FSA, as a structure, complies with Cadbury. That is rather curious given that we have two roles embodied in one person. I gather that in its defence the FSA has complained that having dual heads would complicate matters with the FSA and might compromise the position of the head of the organisation when dealing with overseas counterparts. I do not see why the FSA should be any different from other organisations, be they companies or Government agencies, which comfortably deal with foreign counterparts with a split of roles at the top. There may be a case for saying that it was justified to have one supremo during a period of turbulence and reorganisation, but not when that period came to an end. When the Bill is enacted and becomes law, we would like the roles to be split. We would very much welcome Howard Davies staying on in the key role. We are concerned that having one head at the top affects relationships between that head and the members of the non-executive board. It has implications also for the setting of agendas for board meetings if that is down to one individual.

Nigel Beard (Labour, Bexleyheath and Crayford)

Does the hon. Gentleman agree that the flaw in the argument that he and his colleagues are advancing, is that they are making an analogy between a normal commercial company and the Financial Services Authority? If a chairman and a chief executive of the FSA had to consider a major investigation, there would be every incentive for investigators at all levels to try to drive a wedge between them. If there were not one authority at the top, there would be a standing invitation to do just that. The circumstances are quite different from those of a commercial organisation. The FSA is far nearer being in the position of an army in the field. No sensible person would consider that the commander of an army in the field should have a chairman above him.

Tim Loughton (Conservative, East Worthing and Shoreham)

That is an interesting point. I sense a slight change of tack since the hon. Gentleman debated this issue in Committee. I recall that he said then that, unlike the case with commercial companies, the head of a regulatory organisation needs to be able to act swiftly, overnight or whatever. I disputed that. A regulatory organisation is no different from a large multinational company, which needs to act quickly in a takeover. However, the hon. Gentleman now takes the tack that there may be division between the two people at the top. If the FSA does its job properly, it will be able to agree cabinet and committee responsibility, and the chairman and the chief executive should be singing from the same song sheet. If there were two roles, there would be two views, at least behind the closed doors of the FSA, in the committee meetings to decide policy. Those views could provoke a proper, full debate, and a single resolution, which would become the FSA's policy.

Jim Cousins (Labour, Newcastle upon Tyne Central)

The hon. Gentleman has already drawn attention to the chairman's appointment by the Treasury and made a point of mentioning his substantial salary. The amendment suggests that a chief executive should be appointed by the Treasury, also on a substantial salary. He suggests that in public, the chief executive and the chairman should agree, but that they should be allowed to disagree privately. If a Labour-controlled Much Binding in the Marsh district council did that, the hon. Gentleman's view would be different.

Tim Loughton (Conservative, East Worthing and Shoreham)

I appreciate that Labour Members are not given much opportunity to disagree. They are given a line, which they have to feed to everybody. There is no problem if non-executive directors, chairmen, or executive managing directors of the FSA want to disagree among themselves. That is how policy is made, although events in the House in past few days suggest that the Government do not like policy to be made in that way. I do not understand the problem that the hon. Gentleman tried to identify. There is a danger of the financial services industry becoming personified in the figure of Howard Davies because he is such an important one. I wanted to discover why the FSA should be different not only from commercial companies but from other quangos and Government agencies and companies, so I did some research. There are numerous examples of bodies—for example, the Environment Agency—which have a chairman, a deputy chairman and a chief executive. My right hon. Friend the Member for Wells mentioned the BBC. Divisions of responsibility between chairmen and chief executives exist in other regulatory bodies—for example, in the Investment Management Regulatory Organisation, the Securities and Investment Board and the Securities and Futures Authority. Much of the Bill was based on the experience of self-regulating organisations. Why should the FSA be different? Logic tells us that it should not be different because it is much more powerful than the other organisations that I mentioned. Investing so much power in one person in that more powerful body is dangerous. A host of other organisations routinely divide responsibilities; for example, the New Millennium Experience Company Ltd, which the Government would doubtless like to support, the new opportunities fund, the Occupational Pensions Regulatory Authority, the Criminal Cases Review Commission and the Youth Justice Board for England and Wales. Those organisations have regulatory powers, albeit not on the scale of the FSA, and have always divided responsibilities between chairmen and chief executives. One has to do a great deal of research to uncover organisations that do not have such a split. The Library provided me with only two examples: Trinity House Lighthouse Service and the Central Laboratory for the Research Councils, whose chairman and chief executive are embodied in the same person. The Bill provides for an exception. That is why we argued so hard, but fruitlessly, given the attention that the Government paid to our arguments, in Committee. I strongly support amendment No. 19, because its principle goes to the heart of the FSA's accountability. The other four other amendments in the group deal with the appointment of non-executives by the Treasury. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) thought it more dangerous for the Treasury to have the power to appoint all those people, but if a system is working properly—which it should be, but which it does not always do under the Government—the Treasury is scrutinised by Parliament. We have the power, through debates in the Chamber or Select Committee procedure, to scrutinise the Ministers who make those decisions as to whether appointments are just and efficient. I do not see why the hon. Gentleman fears that process, because the House already has such powers and we are trying to open them up to even more scrutiny.

Jim Cousins (Labour, Newcastle upon Tyne Central)

The hon. Gentleman must see that the issue here is accountability to the markets, which must feel that they have some influence on the conduct of the FSA. Such close, fine-grain operational intervention by the Treasury—to the extent that even the members of that important non-executive committee are also appointed entirely by it—is wholly absurd.

Tim Loughton (Conservative, East Worthing and Shoreham)

The hon. Gentleman holds an interesting personal view, but if he had followed our discussions in Committee he would not necessarily take such a line. I am afraid that the FSA, certainly in respect of the Bill, is not accountable only to the industry by any manner of means. We have tabled amendments and new clauses, to make it more accountable in terms of the charges and additional regulation that it might place on the industry. I fear that the vast majority of our deliberations in Committee have not been taken up by the Government, and I am sure that the hon. Gentleman agrees with my concern. If they do not want to make the people running the FSA more accountable to the industry they are regulating, we must make sure that they are accountable not behind closed doors, but to the House. That is the whole point of amendment No. 20. As my right hon. Friend the Member for Wells said, amendment No. 54 would give the non-executives a greater role in reviewing and approving the budget. It is essential that other people—the non-executive directors—have greater powers of scrutiny over the value for money offered to the industry by the FSA and over whether its budget is either sufficient to do its job properly or too generous, resulting in the industry's being penalised by excessive regulation. Amendments Nos. 21 and 22 do no more than echo the words of consultation paper No. 35 from the FSA on senior management arrangements, systems and controls. Their wording is almost identical to section 4 of the paper. If the FSA seeks powers and the Government want to give it powers to meddle—some might say—in the internal structures used by member firms to arraign their management and go about their business, surely one should at the very least expect the senior FSA board members who are setting down the regulations to adhere to the same standards and requirements. That is purely a matter of consistency, which is why we were surprised that the Government did not wish to take it up when we raised it in Committee and before. We are considering important amendments—some might say the most important—at this early stage because they go to the heart of the accountability of the organisation and, in particular, the people who will be responsible for it and keeping a check on its budgets and the number of regulations it produces. The person who runs it now has charge of at least 2,000 people, and if mortgages are to be regulated as well, he will have charge of an awful lot more. That person has enormous power and it is only right that it be properly shared and scrutinised, and, more important, that it should be seen to be properly shared and scrutinised. Ultimate accountability should be to the House.

Andrew Tyrie (Conservative, Chichester)

I have just been given a redraft of part of the Bill, which those on the Treasury Bench have kindly provided. This gives a feel for the scale of the redrafting, which is being done on the hoof. None of us has had the remotest chance to absorb the draft—we are receiving it as I speak, which is extraordinary. Frankly, it is disgraceful and disrespectful to the industry that we are trying to regulate. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) was on the right track, but not with respect to schedule 1. He is absolutely right that the Treasury has huge power under the Bill, and that that power should be diminished. He is not right that the Treasury power of appointment over a chairman and a chief executive is necessarily wrong. [Interruption.] I shall give the hon. Gentleman the opportunity to intervene in a moment. 2.15 pm I strongly support the sentiment behind the hon. Gentleman's interventions and urge him to read the last subsection of clause 10. He will see the extent to which the Treasury is being given powers. He should also consider clause 372—a jumbo, omnibus, sweep-up clause that ensures that the Treasury can do exactly what it likes, notwithstanding the preceding 371 clauses. If he looks at the last subsection of a number of other clauses, he will find that, in case the draftsmen have got it wrong, the Treasury can vary matters by order without interference from anybody else, least of all the House or the hon. Gentleman. I want to discuss a few matters that have not been articulated by my right hon. and hon. Friends. We need to be clear that we are creating a leviathan—an institution of unprecedented power and authority. If it had not been for the Burns committee report—which flagged up the extent to which the Financial Services Authority was effectively becoming judge, jury and executioner—we should have had an even more inadequate tribunal procedure. None the less, the chairman of the authority will still be able, in the mere blink of an eye, to close down businesses, destroy reputations and impose heavy fines. While doing all that, he will have virtually complete statutory immunity. We shall have a new tier of the judicial system—the court system will have a new financial judiciary system sitting alongside it. I am not yet convinced that that is the right way to go. We are creating the most powerful body in this country after the Government, which is why it is crucial that there should be some check on the powers of the chief executive or chairman of such an authority. Someone to whom aggrieved parties can explain their concerns independently should be looking over the Executive director's shoulder, acting as a long-stop in the event of illness or something more serious. Leaving all that power in the hands of one man is not a reasonable way to go. My hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) referred to a passage from the Cadbury report, which is very relevant, which says that it is certainly right for companies and corporate bodies to have a division at the top between a chairman and a chief executive. I reiterate the point made by my hon. Friend that Howard Davies is a very good chap. I have known him a long time and am I sure that he does an excellent job. I more or less took over from him as special adviser in the Treasury to Nigel Lawson. In those days, he was identified as a political adviser to the then Conservative Government, but is now a much more neutral figure, particularly as he attached his name to the Rowntree report on inequality when Director General of the Confederation of British Industry. He has done, and will continue to do, an outstanding job. He, among others, has articulated three arguments as to why he does not see why he should have someone looking over his shoulder. The first argument is that comparable international bodies do not have somebody looking over their shoulders. The only remotely comparable body is the Securities and Exchange Commission in the United States, but it deals with a small proportion of what the FSA will be required to deal with. That is not a genuine comparison. We are dealing with something new and we are in uncharted territory. We are dealing with a rule-making, self-sustaining body on a scale that we have never had in the United Kingdom.

Liz Blackman (Labour, Erewash)

Why does the hon. Gentleman persist in minimising the considerable expertise and distinction of the board members, executive and non-executive? His line of argument seems to suggest that the board is a mere puppet. That is not and will not be the case. Does he accept that argument?

Andrew Tyrie (Conservative, Chichester)

I have not yet mentioned the board, but I promise to do so before I sit down. If I may, I shall deal with that point when I come on to our other amendments that would strengthen the hands of the non-executive directors. The second argument made by Howard Davies and others is that to make the memorandum of understanding between the Treasury, the FSA and the Bank of England work, we must have one clearly identifiable person in charge to deal with problems if they turn swiftly into crises. It is argued that we must not have responsibility so split that nobody knows who is responsible for what. I have read the memorandum and that argument does not remotely wash. There is indeed a division of responsibility, but the main problem with the memorandum is not a putative division of responsibility within the FSA, but the division of responsibility between three groups. It will often be the FSA's job to spot early when trouble may arise in a particular firm which may generate a serious prudential or systemic problem. It is the Bank of England's responsibility to suggest and put in place a support operation and to take any action that may be required to deal with systemic risk, which may include the adjustment of interest rates in conjunction with the Monetary Policy Committee. The Chancellor is responsible for all of that to Parliament. Furthermore, in a provision tucked in the middle of paragraph 13 of the memorandum, which has not been given remotely enough attention, we discover that the Chancellor has the option of refusing to support a given action. In other words, he has the power of veto over the other two bodies. We have, then, real scope for confusion built into the memorandum. As yet it is wholly untested. If it is tested, I worry that it might be found wanting. That is the real division of responsibility that could create problems, not any putative division of responsibility between a chairman and a chief executive of the FSA. The third and often heard argument is a general point about accountability—that nobody would be sure to whom they should go. That is highly implausible. It does not seem to obstruct the workings of all the institutions listed by my hon. Friend the Member for East Worthing and Shoreham. They seem to be able to cope well. Indeed, so far as I know, none of them has made representations to the effect that they want to do away with the chief executive- chairman split because it makes their work difficult. Nor, indeed, did Howard Davies seem to find it difficult with such a split when he was at the Audit Commission. When he was Controller of Audit of that powerful institution, he had a chairman above him who was looking over his shoulder and to whom ultimately he was answerable. It is a well-established, intelligent and effective structure, not only for all businesses and many public sector bodies, but for the nearest we have to a powerful institution which has been headed up by Howard Davies.

Nigel Beard (Labour, Bexleyheath and Crayford)

Having had the responsibility in the Treasury under the previous Government that he mentioned, can the hon. Gentleman say why it was appropriate to have regulators for all the public utilities—single people regulating in similar circumstances to the head of the FSA—with no equivalent chairman, whereas when it comes to a general responsibility for the City there is suddenly perceived to be a need for a chairman to provide safeguards? Why is there that distinction?

Andrew Tyrie (Conservative, Chichester)

There is a massive difference between a water regulator and a regulator of the financial services industry. For those who are interested, a large part of that debate took place in Committee, where the hon. Gentleman made exactly the same point. Rather than go through all the arguments now—

Nigel Beard (Labour, Bexleyheath and Crayford)

Will the hon. Gentleman give way?

Andrew Tyrie (Conservative, Chichester)

If the hon. Gentleman will forgive me, I will not give way a second time. I should like to get on. The Joint Committee report is unequivocal in its recommendation that for the longer term we must have a split. I do not know whether anyone has read out the exact words—

Tim Loughton (Conservative, East Worthing and Shoreham)

Yes, I did.

Andrew Tyrie (Conservative, Chichester)

My hon. Friend says that he did. The recommendation is clear. However, we should not take that as gospel or writ. It is an indication—a group of people thought carefully about the subject and came to that conclusion. We should be able to judge for ourselves. We need to ask ourselves a few simple questions. Do we really think that the head of the FSA will be hamstrung if he has a chairman above him? Do we think that foreign regulators will look down on him because he has a split role—because there is a chairman and a chief executive? Will it demean in any way our system of financial regulation? Do we think that having a split will increase problems in a financial or systemic crisis, given the huge lacuna in the memorandum of understanding which would cause that confusion and which is of far greater proportions than any conceivable consequence of the chairman-chief executive split? The arguments are all the weaker given the drafting of schedule 2(4), which sets out the functions of the non-executive directors. I will not linger on this point for long because I want to be brief, but it is clear from the drafting that it is intended to exclude the non-executive directors from fundamental scrutiny and monitoring of the overall workings of the authority. The amendment would put that back. We are trying to act on both issues with our amendments. That must be the way forward, and I commend the amendments to the House.

Melanie Johnson (Labour, Welwyn Hatfield)

As hon. Members have persisted in their remarks about amendments and the degree of change in the Bill, I must make one point in response. The vast majority of Government amendments were tabled last Friday. Although this week we missed Wednesday officially in this House, its 24 hours nevertheless existed in reality, so the calculation of 72 hours made by the hon. Member for East Worthing and Shoreham (Mr. Loughton) is a gross understatement of the amount of time that the Opposition have had to deal with the matters before us today.

Andrew Tyrie (Conservative, Chichester)

We were not here on Friday. More fundamentally, will the Minister explain why it was not possible to table the amendments a little earlier, or have the debate a week later, to give us a fortnight to consider what are serious matters, particularly as we have tried, as much as possible, to move forward on the basis of all-party agreement? Discussion of the Bill has not been highly adversarial.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. If those matters were to be raised at all, they should have been raised under an earlier item on today's Order Paper. That debate has taken place. Perhaps the Minister might return to the substance of the amendments.

Melanie Johnson (Labour, Welwyn Hatfield)

I am forced to take that advice, Mr. Deputy Speaker, but we co-operated with the Conservative Front-Bench team. As Front Benchers know full well, there has been considerable co-operation on all these matters. I see the right hon. Member for Wells (Mr. Heathcoat-Amory) nodding. On the issues of substance, first, there is accountability. It is important that there is a single public face of the FSA, a single chief point of contact who is accountable to the Treasury and can be called before parliamentary Committees—a single person with whom the buck stops. Conservative Members have argued that accountability is important. I agree, but my experience is that, where roles are confused and more than one person could be said to be responsible for something—as might happen with the proposed split between a chairman and a chief executive—it can easily confuse the clear chain of accountability, blur the lines as to who is responsible for what, and create doubt as to the authority of any one person to represent the FSA and, ultimately, to carry the can, including being accountable to the Treasury and hon. Members. Secondly, we need to ensure that there is a person with the wherewithal and authority to lead the FSA both in its daily business and in the international arena. The FSA is a major player on the international regulatory stage. We want it to stay there. That is an important aspect of its current role. Virtually all other major international financial regulators—Conservative Members skated over the point hurriedly—are represented by full-time executive board chairmen. Those are the arrangements. They are public representatives of those organisations. It is important that the FSA is represented by a person of appropriate and equivalent stature in those arenas. Some have suggested that the roles of chairman and chief executive could be split to reflect current thinking on corporate governance. Several Conservative Members dealt with that question, but parallels with ordinary companies are far from exact. The combined code is designed for companies with shareholders who do not benefit from the various accountability checks and balances provided for by the Bill. The spirit of the code is that there should be a strong non-executive element on the board. We have more than provided for that. There will be a majority of non-executives. The non-executives will form a committee to keep under review whether the FSA is discharging its functions in the most efficient and economic way; to review the FSA's financial controls; and to determine remuneration. On top of that, there is a range of other accountability measures that a normal company would not have. The board will be appointed by the Treasury and subject to transparent appointment procedures. There will be an annual report to Parliament, which is an important part of the accountability mechanism, and an open annual meeting, at which stakeholders can air their concerns. We have built in practitioner and consumer panels, which will be consulted on FSA general policies and practices. Last, but by no means least—it is one of the most important aspects—there are the principles and objectives that guide the way in which the FSA, and hence its governing body, will act.

Howard Flight (Conservative, Arundel and South Downs)

The Minister said that the board would be appointed by the Treasury. Will she clarify the matter? Our amendment was intended to achieve that, but surely the schedule requires the authority to appoint the governing body. If the authority does that, it will be able to appoint its chums.

Melanie Johnson (Labour, Welwyn Hatfield)

I confirm that the Treasury appoints the board and will do so in line with transparent Nolan-type procedures, if that helps the hon. Gentleman. There are other reasons why I will not accept the amendments. First, the tripartite arrangements between the Treasury, the Bank of England and the FSA are based on relationships between the organisations and their heads. It is hard to see how the FSA could easily be represented in the forum by a person with appropriate stature—

Andrew Tyrie (Conservative, Chichester)

Further to the Minister's statement about who will appoint the non-executive committee, may I seek clarification? Paragraph 3(2) of schedule 1 reads: The members of the non-executive committee are to be appointed by the Authority. Do the Government intend to table an amendment to change that, so that henceforth they will be appointed by the Treasury?

Melanie Johnson (Labour, Welwyn Hatfield)

I will come back to that point. May I finish the points that I was making because I started with a "first"? I want to round off my comments about the special factors to be taken into consideration. Secondly, as the non-executives on the FSA board have said, the organisation is mature enough not to be merely a creature of its chairman. I am grateful for the comments of my hon. Friend the Member for Erewash (Liz Blackman) about the way in which Conservative Members suggested that the board was a mere cipher and rubber stamp for the organisation. Quite the contrary; I have been to board meetings and met board members on several occasions. It is not the case that board members are anything other than extremely competent and professional. Many views are expressed at the meetings.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

This is the moment for me to ask the Minister to clarify the point that I raised in my speech. I described paragraph 4(3) of schedule 1 as boxing in the non-executive functions: the non-executive committee will review simply whether the authority is using its resources in the most efficient and economic way. She is speaking as though the committee had an overall remit of the type that we recommend in our amendment. What is she saying? Are they boxed in by paragraph 4(3) or are they not?

Melanie Johnson (Labour, Welwyn Hatfield)

Perhaps I could come to the point that the hon. Member for Chichester (Mr. Tyrie) raised before coming to the right hon. and learned Gentleman's point? The Treasury appoints the members to the board. The FSA has to ensure that they form a committee under paragraph 3. Paragraph 2(3) is the one that the hon. Gentleman should look at. The FSA appoints the non-executives. Perhaps that clarifies that point. [Interruption.] I am looking at the text of the Bill. Paragraph 2(3) states: The chairman and other members of the governing body must be appointed, and be liable to removal from office, by the Treasury.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Hansard will record that the Minister said that that was done by the authority. Now she has rightly read out that it is done by the Treasury.

Melanie Johnson (Labour, Welwyn Hatfield)

I am talking about the non-executive committee, which must have the paragraph 4(3) functions. It will also be open to the FSA to confer functions on the committee. Therefore, paragraph 4(3) does not box in the committee; it does quite the reverse.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Will the Minister please explain why it does not box in the committee? She has received a note from those who are assisting her saying that it does not box in the committee, but why is the provision so carefully confined?

Melanie Johnson (Labour, Welwyn Hatfield)

I shall deal with that point in a moment but should like first to deal with the point made by the hon. Member for Chichester on how the Government have dealt with some of the matters. Amendment No. 19 is worded very flexibly, so that the split between the chairman and the chief executive could be undertaken in the longer term—I see the hon. Member for Chichester nodding. However, I still do not agree with the amendment, as it raises the real issue of who would allocate the roles and how they would be allocated. We have other objections to splitting the roles of chairman and chief executive, but Opposition Members have not dealt with them in their amendments.

Andrew Tyrie (Conservative, Chichester)

Will the hon. Lady explain briefly why the FSA is such a unique structure that it cannot have a division of roles? It would be done by the Treasury if the flexibility provided in the paragraph to which she referred were used. Why are all the other bodies that have been mentioned perfectly able to cope with such a split and function happily, whereas the FSA cannot?

Melanie Johnson (Labour, Welwyn Hatfield)

Will the hon. Gentleman repeat his last sentence?

Andrew Tyrie (Conservative, Chichester)

Why are all those other bodies able to cope with a division of roles and find a way of dividing responsibilities between chairman and chief executive, whereas the FSA is held to be so unique that it would be incapable of doing so?

Melanie Johnson (Labour, Welwyn Hatfield)

The Financial Services Authority is unique in many respects. However, it is not unique among regulators. Nor is our proposal unique among arrangements made for other international regulators. Our proposal is exactly in line with the structure of other major international regulators, which are not splitting the roles. The roles should remain combined, as we have proposed. I should like to deal with some of the points that Opposition Members have made about the current incumbent of the post, Howard Davies. I share their enthusiasm for him and the way in which he is discharging his role, although I was a little alarmed by some of their remarks that he might leave after his contract ends, if not before. Nevertheless, the Government's arguments depend not on the current incumbent and his many undoubted qualities, but on the fact that we do not think that it is appropriate or right to make the split. I should like briefly—I may test your patience temporarily, Mr. Deputy Speaker—to point out to the hon. Member for Chichester that the redrafts of explanatory material on amendments that he was waving deal with specific matters in which Opposition Members had expressed an interest in Committee. It is highly technical material, and we expect to deal with it not today, but on Tuesday. I regret that however helpful the Government have been on the Bill—we have tried to be extremely helpful, recognising as we do the many helpful contributions made by Opposition Members—some of them, such as the hon. Member for Chichester, seem unable to deal with that helpfulness. 2.45 pm I tell the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) that paragraph 4(3) does not box in the committee because the FSA can confer further functions. Paragraph 4(3) simply specifies the minimum functions. If the right hon. and learned Gentleman still thinks that the provision boxes in the committee, perhaps he would like either to raise the issue later in the debate or to write to me.

Howard Flight (Conservative, Arundel and South Downs)

Hon. Members on both sides of the House seem to be joining in the love-in for Howard Davies and the good job that he has been doing. After publication of the Bill, it was reported that the Treasury had taken the view that it was better to have a split between non-executive chairman, chief executive and principal, but that the Government were leaving the provision as drafted largely in deference to Howard Davies. Indeed, after the Bill was published, Lord Burns confirmed his judgment that the Government would have to look again at the unified role. I do not want to repeat other arguments, but shall deal with the crucial points. The Investment Management Regulatory Organisation model worked extremely successfully. A non-executive chairman is not someone competing to be chief executive or to be accountable, but a person of wisdom and experience whom the chief executive can consult on difficult issues, and someone who could protect the chief executive if he or she were being leant on by Government. I cannot resist raising a fairly major issue that is currently in Howard Davies's hands for decision. As the House will know, IMRO launched a major investigation into London and Bishopsgate, the Maxwell investment management company. Quite correctly, the investigation was not published at the time, as proceedings were pending against the Maxwell brothers. Now, the decision on publication must be taken. The Opposition argue that, in the interests of accountability and openness, it should be published. That is precisely the type of matter in which a chief executive should be able to draw on the wisdom of a non-executive chairman before taking a decision, and to seek support in dealing with Government attempts to lean on him or her.

Barry Sheerman (Labour/Co-operative, Huddersfield)

I was the Deputy Chairman of the pre-legislative inquiry. Before the hon. Gentleman assumes too much—that there was a clear political split on the issue—I should tell him that several Committee members had reservations about splitting. I took Lord Burns's view, and rather reluctantly came to the conclusion, as it was shared by the majority of Committee members, that, for now, the role should be kept as one.

Howard Flight (Conservative, Arundel and South Downs)

We know that there are arguments on both sides. The Opposition accept that, during the reign of the great Howard Davies, it is sensible to keep the role unified. We accept that there is much to be done in establishing the body and addressing all the issues. We tabled amendment No. 18 because, after examining all the issues, we believe that Parliament should signal that, in the longer term, it would be wiser to have a non-executive chairman. We had thought that the Government shared that view because, as hon. Members will note, the Bill uses only the word "chairman", thereby leaving the door open to a subsequent split.

Liz Blackman (Labour, Erewash)

The hon. Gentleman should be aware that, although many of the witnesses appearing before the Joint Committee were practitioners who favoured not splitting the role, none of them cited Howard Davies's personality as a factor in forming their view. They said that the position should remain one for reasons of accountability and clarity.

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Lady for that intervention. I was not a member of the Joint Committee, and it was not my impression from the report that its contribution was so large. The issue is simple, and we concede that both sides of the argument have merit. We prefer the IMRO model and believe that the non-executive chairman position has advantages and does not damage the authority of the chief executive. However, others argue otherwise. The case that the authority of a chief executive is damaged by the appointment of a non-executive chairman is not proven by experience. However, the opposite case—that a chief executive without a non-executive chairman may have too much power and be unaccountable in the absence of a person to consult with—can be illustrated by experience. If amendment No. 22 is not accepted, the role of the excellent non-executive board will be emasculated because it will not be given the normal duties and responsibilities—as set out under the Cadbury guidelines—to scrutinise and monitor the work, performance and standards of conduct of the FSA executive management. We see no reason why those activities should have been excluded from the non-executive board's role. The question of who appoints whom deserves consideration. As I thought, the authority, not the Treasury, will appoint the non-executive members. Our objection to that is that a chief executive without a chairman clearly has the power to appoint his cronies. Despite all the problems described earlier, the Treasury should make those appointments, not the FSA. Perhaps it would be better if industry representatives were to nominate members, but the Government's intention was to move away from self-regulation. Therefore, we believe that, for the time being at least, the Treasury option is to be preferred.

Nigel Beard (Labour, Bexleyheath and Crayford)

Where in the Bill are the powers of the board circumscribed in the way that the hon. Gentleman has set out?

Howard Flight (Conservative, Arundel and South Downs)

My point is that the roles and duties of non-executive directors that I described—and which appear in the standard list recommended by the FSA—are not included in the Bill. That is not to say that they could not be added in the future, but why on earth exclude now what are the proper and normal roles of non-executives?

Jim Cousins (Labour, Newcastle upon Tyne Central)

I draw the hon. Gentleman's attention to paragraph 5(1) of schedule 1, which deals with this matter. It correctly leaves to the authority the responsibility for devolution of function and powers in the authority.

Howard Flight (Conservative, Arundel and South Downs)

That reinforces my point that it should not be for the authority to make its own constitution. Schedule 1 deals with the constitution of a body entrusted with running the financial services industry. I do not see how what the hon. Gentleman said interferes with the straightforward proposition that the constitutional role of the non-executives should be set out clearly in the relevant part of the constitution. We wanted to put on record what we consider to be the right constitutional structure, which we hope the FSA will move towards. That will have to await the end of the reign of Howard Davies, and can be dealt with subsequently. The Government do not want to admit it, but the Bill is drafted with enough flexibility to cover that. However, we have not been persuaded by the arguments advanced by the Government and Howard Davies in favour of having a single chief executive.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

With permission, Mr. Deputy Speaker—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I am afraid that the right hon. and learned Gentleman cannot speak a second time. Only the person who has tabled the amendment can automatically speak a second time on Report. Is the hon. Member for Arundel and South Downs (Mr. Flight) pressing the amendment?

Howard Flight (Conservative, Arundel and South Downs)

I thought, Mr. Deputy Speaker, that I had indicated in what I just said that we would not press the amendment to a vote.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Is the hon. Gentleman therefore withdrawing his amendment?

Howard Flight (Conservative, Arundel and South Downs)

I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

Melanie Johnson (Labour, Welwyn Hatfield)

I beg to move amendment No. 480, in page 197, line 47, at end insert— () The complaints scheme must be designed so that, as far as reasonably practicable, complaints are investigated quickly.".

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following amendments: No. 186, in page 198, line 27, leave out "reference" and insert "submission". No. 187, in page 198, line 27, leave out— which the Authority is investigating". No. 23, in page 198, line 33, leave out "and". No. 32, in page 198, line 36, at end insert— ;and (iv) to recommend to the Authority the award of such sum as appears to him to be fair and reasonable in all the circumstances of the case in relation to any maladministration by the Authority.". No. 188, in page 198, line 36, at end insert— (iv) to make an award against the Authority of such amounts as he considers fair compensation for loss or damage resulting from the subject matter of the complaint". No. 189, in page 198, line 37, leave out "Authority" and insert "investigator". No. 190, in page 198, line 37, leave out— it must notify the investigator and insert "must notify the complainant". No. 191, in page 198, line 39, leave out sub-paragraph (4). Government amendments Nos. 437 to 441.

Melanie Johnson (Labour, Welwyn Hatfield)

The complaints scheme is an important part of the accountability package delivered by the Bill. The Bill should deliver an open and transparent mechanism that will allow people's complaints to be dealt with quickly, cheaply and informally. However, the Bill delivers other important protections as well. For example, firms will be able to go to the financial services and markets tribunal to challenge the FSA's decisions. The Government introduced amendments to the complaints scheme provisions following the Joint Committee's recommendations, to make it clear that the investigator should be fully independent of the FSA. That independence will include having adequate funds and staff. The investigator's appointment is also to be approved by the Treasury, and he or she cannot be removed from office without the Treasury's consent. It is important that everyone is happy with the independence of the arrangements, and the FSA will consult further on them fairly shortly. I understand that the issues to be studied are likely to include ways to secure the investigator's independence through the appointment arrangements and the provision of independent support staff. I recognise how important it is to secure the investigator's independence. The Government amendments, together with the provisions already in the Bill, will achieve that. I shall not respond to the Opposition amendments now, Mr. Deputy Speaker, in the hope that I will have the opportunity to do so later.

Howard Flight (Conservative, Arundel and South Downs)

rose—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. Perhaps I can help the Minister. By leave of the House, she is able to speak a second time, as she would be were she tabling her own amendment. However, it may be for the convenience of the House were she to say all that she wishes to say on this occasion, in case she wishes to come back a second time later.

Melanie Johnson (Labour, Welwyn Hatfield)

Thank you for your guidance, Mr. Deputy Speaker. I shall take this opportunity to make some brief remarks about the Opposition amendments in this group. The amendments would partly take the FSA out of the process—or at least, they would not give it the opportunity to deal with complaints in the first instance. The Government consider that it would not be sensible to take the FSA out of the process in the way proposed. Most complaints arrangements—such as those relating to regulating firms under the current system—give the subject of the complaint the chance to put his house in order before an independent investigator is brought in. What would be the implications for the time and resources of the investigator if he or she were to investigate all complaints in the first instance? We are trying to set up a mechanism for cases which the FSA cannot resolve with complainants, not a first port of call, and not a port of call for every single case that might arise. 3 pm The scheme nevertheless ensures transparency, so if the FSA decides not to investigate a complaint, the investigator should know about it; and if the authority decides to go ahead and investigate, again, the investigator should be informed. The investigator can then take up the complaint if he or she sees fit. Of course, if the FSA does not sort out a complaint satisfactorily, the independent investigator comes in. Taking the FSA out of the picture in the first instance would not be right or efficient. The Joint Committee suggested that we consider the possibility of ex gratia payments. We have been doing that, and we continue to do so, but it is not appropriate to come to a decision until we see the FSA's consultation paper on the proposed arrangements for the complaints scheme. Amendment No. 188 argues for just such compensation. It is important that the complaints scheme is not seen as a means of circumventing the FSA's statutory immunity. We do not want to encourage people to take pot shots at the FSA and distract it from its proper business of regulating. As the scheme is not part of the Court Service—indeed, the investigator need not be a lawyer—he or she would not necessarily come to a decision based on legal principles that a court would apply. The complaints scheme is an informal mechanism for investigating complaints and, where appropriate, bringing shortcomings into the open; it is not a court, nor is there a right of appeal for the FSA if the investigator makes an adverse finding against it. Although the Bill does not give the investigator the power to award damages, the complaints scheme will have real teeth. The investigator can publish his or her reports and has the power to name and shame the FSA—or, if he or she sees fit, individuals within it. Therefore, the strength of the arrangements should not be underestimated. The FSA will also need to include details concerning complaints in its annual reports to the Treasury and to Parliament. I hope that, once they have considered my remarks and the Government amendments, hon. Members may see fit to withdraw their amendments in this group.

Howard Flight (Conservative, Arundel and South Downs)

Government amendment No. 480 is quite acceptable. It responds to an issue that we raised about speeding up the handling of complaints. We are now in the single most important territory of principle. As the Burns committee set out in its doctrine, and as has been the universal response from the industry, if there is to be effective legal immunity, there must be a clearly independent system of complaints—if not with the ability legally to award compensation, with the ability to recommend and suggest fair recompense when businesses have been damaged by incorrect or wrong conduct by the FSA. As the Minister has just said, in Committee the Government accepted the principle that the investigator could suggest ex gratia payments. There is no Government amendment to that end, and the Minister has said that the matter is still under consideration, awaiting the FSA's comments. We ourselves have had discussions with the FSA on this issue. It pointed out that, if the payments were compensation, there would be a potential problem of legal disputes, particularly over matters such as the refusal of applications, but it is perfectly happy with the principle of ex gratia payments being recommended to it. Amendment No. 32 has been worded deliberately to accommodate that. It proposes that the investigator recommend suitable sums for payment by the FSA, so that it will ultimately be an ex gratia regime. We will wish to withdraw amendment No. 188, which is clearly stronger, and sets out a specific proposal for compensation. Our other amendments seek to create a complaints regime that is fully independent. While there may be something in the argument that the complaints investigator's time should not be wasted with minor issues, the bigger argument is that it is inappropriate for all complaints to come to the FSA first. The FSA has the power of life or death over businesses in terms of authorisation. There is considerable fear of the FSA in the industry—fear that, if offence is given or a foot is put out of line, a business may suffer. It is therefore inappropriate that complaints should first be vetted by the FSA. The investigator needs to be fully independent to receive and consider complaints, and recommend recompense if a business has been genuinely damaged by a wrong action by the FSA. We shall come in due course to the issue of legal immunity. The two issues might best have been debated together, but it is absolutely clear that, in achieving a fair and sensible balance of power—if there continues to be effective legal immunity, as the Bill at present prescribes—it is essential, as the Burns committee made clear, to have an independent system of complaints, and for the body concerned to be able to recommend, if not award, fair payments for damage suffered by businesses as a result of the FSA's mistakes.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I agree with the points made by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), including those about the importance of having an independent investigator who can award compensation, of at least a reasonable nature. My hon. Friend pointed out that our amendments are in two forms—amendment No. 188, which requires that the investigator be able to award compensation, and amendment No. 32, which requires that he or she be able to recommend an award of compensation, leaving the ultimate decision to the authority. To that extent, it would be ex gratia. We put that in to water down our recommendation, to make it easier for the authority, and to stop it being frightened that its immunity would thereby be completely undercut. We are the Opposition, not the Government. The Government need to reflect seriously and carefully on exactly how to handle this matter. I echo my hon. Friend's statement that the recommendation was made by the Burns committee, which gives it great weight, just as the committee's views on the chairmanship and the question of chairman and chief executive gave that great weight. I hope that both those matters will be reflected on extremely carefully. This group of amendments and the next group, on immunity, hang together, as my hon. Friend rightly said. The Minister knows that I support a substantial degree of immunity for the FSA. I think that it is necessary, for the reasons that my hon. Friend stated. We do not want to see the authority undercut, and, as the Minister said, we do not want unreasonable pot shots. They may be much more than pot shots; they may be major attacks by extremely powerful institutions. That is one side of the picture. The other side is that the FSA is being given immense power over the livelihoods of thousands of people whose own money is at risk. If it performs its functions badly, it should be capable of being held to account. If it does significant damage to individuals working in the market through its own fault, there should be some comeback and some financial compensation. The authority is big enough to be able to behave properly to those whom it has a duty to regulate, but whom it has let down as a result of inadvertence, stupidity or worse. I hope that that will not happen very often, but I would feel much more confident about its being a rare occurrence if I knew that the authority was aware that it must look over its shoulder, at least to a limited extent, and realise that if it messes up those working in the market or others through its own incompetence or error, it can be held reasonably to account for at least reasonable sums to return them to the position in which they ought to have been. We are setting up a huge institution. What we are doing is unprecedented. We really must be big about it: we must not be frightened—Governments, whatever their complexion, must not be frightened—to be prepared to pay compensation to those who suffer when misregulated. There is no reason why the whole regulatory system should collapse as a result of that balance. If we do not get this right, Strasbourg may eventually force us to get it right. One of the problems of this Bill is that it is so defensive about the idea of judicial review. Nearly every provision that could be drafted so as to inhibit the opportunity for judicial review is thus drafted. It will not prevent judicial review on the part of financial institutions that are rich and powerful enough to afford that expensive and complex process, but judicial review would be far less necessary if the system involving the investigator and reasonable compensation were established properly. I am in favour of that system. I am in favour of a comparatively formal process. However, if it is so boxed in—if I may use another contentious phrase—that it is not effective, people will look outside it. Eventually, they will take the cases to Strasbourg. They will rely on article 6 of the European convention on human rights in relation to lack of due process, on article 7 in relation to the right not to be punished except in accordance with the law, and on the first protocol of article 1, which relates to the right to possession of property. If someone is running a business that is also his property, and if that business is seriously damaged as a result of the authority's incompetence, possession of the property may be denied him. In one way or another, people will find a way of bringing a case outside the confines of this country. Let us get the legislation right. Let us ensure that it is reasonable and balanced.

Melanie Johnson (Labour, Welwyn Hatfield)

We are still considering the issue of ex gratia payments. The FSA is consulting on it, and I do not think it appropriate to pre-empt the results of its consultation. I am not saying that we will decide one way or the other; I am saying that we are waiting for the results. I do not think that people should view the complaints investigator as a potential first port of call, as the Opposition seem to suggest. In any event, the post is not being established for the purpose of financial redress; the point is for the focus to be on the process, and on the importance of transparency.

David Heathcoat-Amory (Conservative, Wells)

We have had a short but important debate on some important amendments. The Opposition consider the investigator's role to be crucial in providing a check on any abuse by the FSA, and any negligence or incompetence on its part. We may have regard for, or even confidence in, the authority's senior management, but that is not always reflected in people's experience of its staff at the coalface, as it were. Hon. Members receive many complaints about regulators. It is important for complaints to be dealt with promptly by an independent inspector who is seen to be independent, and who can receive them separately from any filter mechanism that may exist in the authority. The inspector must be properly resourced, and able to respond to complaints—including, we believe, complaints involving financial awards against the authority. Our proposals would also establish an essential counterbalance against statutory immunity. We shall debate that shortly, so I shall not go into it now, but I want to quote one sentence from the report of the Joint Committee on Financial Services, of which I was a member last year. It concluded, among other things: We agree with those who see a robust complaints procedure as the central counterbalance to the FSA's statutory immunity. It asked the Government to give serious consideration to the issue of financial awards. I do not think that it is enough simply to refer to the possibility of ex gratia payments that are not mentioned in the Bill. That is not an assurance at all. I know that the Government do not want to allow the FSA to get into a legal tangle in regard to what might be compensation, and that that might have to be judged against some objective criterion. I think we should leave open exactly how awards are to be measured and made, but they must be referred to in the Bill. That is the thrust of the Joint Committee's conclusions, and it is the strong view of the Conservative Members who have spoken. We do not intend to press the other amendments, but we will press amendment No. 32. Amendment agreed to. Amendment proposed: No. 32, in page 198, line 36, at end insert— ";and (iv) to recommend to the Authority the award of such sum as appears to him to be fair and reasonable in all the circumstances of the case in relation to any maladministration by the Authority.".—[Mr. Heathcoat-Amory.] Question put, That the amendment be made:—

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 33, in page 201, line 39, after "faith" insert "or due to recklessness". The amendment relates to the extremely contentious issue of statutory immunity. All hon. Members should be alert to any proposal to exempt any outside body from the force of law. For that reason, we have paid special attention to schedule 1. Part IV of the schedule will exempt the authority—both the corporate body and anyone who works for it—from legal action, except in certain narrowly defined circumstances. The matter needs careful scrutiny. It is objectionable in principle for any body or person to elevate themselves above the law. It is ironic that the Bill extends the law—indeed, it creates new law—bringing people within its ambit, in many cases for the first time, while the FSA is retreating behind the wall of statutory immunity. The Government must explain why the FSA is taking that degree of immunity, when the trend of political development over recent years has been to remove statutory immunity. I remember a time when Crown immunity meant that if health and safety provisions were being ignored—in hospitals, for example—the law offered complete immunity from any legal action. Since that time, much has happened to bring public bodies within the law, making them accountable; for example, neither the police nor the Serious Fraud Office are statutorily immune. However, the FSA, which has an incredible concentration of executive and law-making power, will be statutorily immune, except where it is acting in bad faith. The authority can be subject to judicial review, but the possibility of that has been considerably tightened by the wording of the Bill. Some hon. Members will discuss that matter at greater length. The question is whether it might be wise slightly to loosen the statutory immunity, at least so as to ensure that it cannot be claimed if the authority acts recklessly.

Jim Cousins (Labour, Newcastle upon Tyne Central)

The amendment would insert the concept of recklessness. Will the right hon. Gentleman define recklessness? If the amendment is accepted, his definition of recklessness could have a considerable effect on how that concept is interpreted.

David Heathcoat-Amory (Conservative, Wells)

The interpretation of all these matters is for the courts. However, the concept of recklessness is well known in the legal system. I do not know whether the hon. Gentleman has a driving licence, but I hope that he has never been accused of reckless driving. If he has, he will know that the penalties are severe. The concept of recklessness—a good old English word—should not create any difficulties, especially as the Bill already includes concepts such as acting in bad faith or negligence. Those mean slightly different things, but they are not new departures within the legal system. If the hon. Gentleman wants to develop his argument against recklessness, I shall listen to it with interest. We discussed the matter in Committee and encountered no problems with the concept of recklessness—only with the Government's belief that the FSA should be immune in respect of reckless behaviour. That part of the law runs up against the European convention on human rights. Several cases of negligence in which attempts were made to claim immunity did not succeed; and some court cases brought under the convention resulted in the public bodies—the police, in one case—being made liable for negligent behaviour. However, we shall not touch on those matters. Our aim is more modest: to net the FSA within the ambit of the law, if it acts recklessly. That is a reasonable proposition. There is a certain symmetry in the Bill. A market participant—a registered firm or an individual—would certainly be found guilty, and could be fined, if it acted recklessly or negligently. An oversight by a firm or an individual will, in some circumstances, render that body or person liable to a fine, or to the disciplinary processes outlined elsewhere in the Bill. Intent does not necessarily have to be proved. An oversight—reckless or not—could land the regulated person on the wrong end of a fine. However, that does not apply to the FSA. As matters stand, it can act negligently or recklessly and no one can take legal action against it. If the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) finds that fair or reasonable, we shall be interested to hear his speech. Earlier, we discussed compensation—or the financial penalty that could be levied on the FSA, or paid to the firm or individual concerned. However, the Government have turned that down in favour of the much looser concept of ex gratia payments, which are not covered in the Bill. Last year, in the Joint Committee—

Liz Blackman (Labour, Erewash)

Will the right hon. Gentleman tell us to which financial regulator the concept of recklessness applies?

David Heathcoat-Amory (Conservative, Wells)

The Financial Services Authority is the regulator to which the provision will apply. I am not interested in other regulators, but if the hon. Lady will enlighten me, I am sure we shall have another Bill to cover them.

Liz Blackman (Labour, Erewash)

Which other financial regulator, financial or otherwise, has incorporated the concept of recklessness as a test whereby an authorised person can sue that body? Is the right hon. Gentleman seeking to incorporate an entirely new concept in the FSA test?

David Heathcoat-Amory (Conservative, Wells)

I have just explained that the concept of recklessness is not a novel proposition for British courts.

Oliver Heald (Conservative, North East Hertfordshire)

My right hon. Friend made the point that the concept of recklessness is not surprising in the context of the Bill. Clause 352 makes it clear that it is an offence recklessly to make a statement in certain circumstances. That concept is already in the Bill and obviously has a meaning.

David Heathcoat-Amory (Conservative, Wells)

My hon. Friend makes an extremely helpful intervention which reinforces my point that recklessness can incur penalties when the public are guilty but not for the FSA when it behaves recklessly. That is precisely what I mean by the asymmetry in the Bill, which the amendment seeks to correct.

Jim Cousins (Labour, Newcastle upon Tyne Central)

I invite the right hon. Gentleman to comment on the fact that the amendment applies the concept of recklessness not only to the authority but to the investigator.

David Heathcoat-Amory (Conservative, Wells)

Exactly the same should apply. It is a modest request to make that if people in authority behave recklessly in the course of their duties, a penalty should apply. In the case of the FSA, that would be done through the investigator. In the case of the investigator behaving recklessly, the penalty would be imposed through legal action. I find it objectionable that firms can have their reputations ruined even if an investigation is launched but does not reach the point of a fine being levied. Even if it is shown that the FSA was reckless in launching such an investigation and destroying the livelihoods of the people concerned, there is no redress at law. If the independent investigator reaches the same conclusion, the FSA cannot be made to pay any financial compensation—which we seek to correct. The Joint Committee took the same view last year, when it made it clear that statutory immunity in the form proposed would only be tolerable if a number of changes were made to the complaints and investigation system. Those changes, which are set out on page 40 of the Joint Committee's first report, have not all been accepted and enacted by the Government. It therefore becomes even more important to restrict statutory immunity. I am not seeking to remove it entirely. Where the FSA makes a difficult judgment after looking at all the evidence and reaches a reasonable conclusion, it should not be open to legal challenge. Nevertheless, it should not have immunity when it acts recklessly. Removing statutory immunity entirely could inhibit the FSA from taking necessary action, but some erosion of the degree of statutory immunity in the Bill is important.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I follow my right hon. Friend in commending the amendment to add recklessness to the concept of bad faith, which would render the authority liable to civil action and damages. It is only a small step from bad faith to recklessness. In some common law definitions, an element of bad faith is one of the ingredients of recklessness. That was so in the leading case of Derry v. Peek, but bad faith is not a necessary element of recklessness. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) asked for the meaning of "recklessness". In civil cases over the past 30 years it has meant the following. In 1961, it meant, with gross carelessness, or unacceptable indifference to the situation of the purchaser—here one might say, of the person being regulated. In the Trades Descriptions Acts, a reckless statement is a statement made without regard for its truth or falsity. In that case, it is made recklessly whether or not there is any dishonest intention. Sometimes there has to be dishonest intention, sometimes not. If there were dishonest intention, the authority or investigator would be caught. One hopes that dishonesty would be exceptionally rare. In cases where there was no dishonest intention but something was done without regard to the truth or falsity of the basis on which it was done, or with unacceptable indifference to the situation of the person being regulated, it is right that the authority should be answerable.

Jim Cousins (Labour, Newcastle upon Tyne Central)

Given comments by Opposition Front Benchers and the right hon. and learned Gentleman's own references to the possible meanings of "recklessness", if the bundle of concepts being advanced—from driving licences and trade descriptions to legal decisions in a number of discrete cases—were imported to the meaning of recklessness in the Bill, would that not seriously undermine the rightful level of immunity to which the right hon. and learned Gentleman referred in the previous debate as something he wants to respect, and is that not something from which he wants to protect the FSA?

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

No. We are struggling to strike the right balance and I am sure the hon. Gentleman is anxious to achieve that balance. I am confident that rarely would the FSA successfully be attacked on the ground of recklessness. There is a benefit in having the FSA under an obligation to look over its shoulder at least to that extent. Any large organisation is likely from time to time to be negligent. It is human nature to be negligent. To place such a burden on the FSA would be to go too far. The Association of Private Client Investment Managers suggests that the authority should be liable in respect of negligence. Although I respect many of the association's submissions, it goes too far in that. I feel sure that the FSA will supervise those working on its behalf sufficiently well to make the occasions on which it acts with gross carelessness rare. It will not be an undue burden on the FSA or its finances if occasionally it has to pay compensation.

Liz Blackman (Labour, Erewash)

Does the right hon. and learned Gentleman accept that under his vague and multiple definition, it is likely that the FSA would be challenged by large firms with lots of money, which could tie up the authority in court for many years and restrict proper regulation?

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

No, I do not accept that. I recognise the danger that, occasionally, large firms might seek to tie up the authority, but restricting the liability of the authority to bad faith or recklessness provides adequate protection. It is a question of judgment, but I think that it is adequately protected. The authority will wish to be astute and, at least, not reckless. It will try hard not be negligent, and it ought to try hard. Members on both sides of the House think it right to make the authority immune from charges of negligence, but the likelihood of a case being successful on grounds of recklessness is much smaller, and the circumstances in which cases are successful are much less justifiable from the point of view of the authority. To draw the line there would seem to be reasonable. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, other large bodies of a prosecutorial or regulatory nature are not given this type of immunity. I do not know to what extent all regulatory bodies have absolute immunity under existing law—it would be helpful to know. We are seeking to reconsider where the line ought to be drawn, and I believe that making the authority liable for recklessness is sensible, and part of that package. I shall be comforted if the Government accept that the investigator will be able to award compensation, either directly or in a way that will effectively shame the authority into granting it—even though there is an element of ex gratia discretion there. That is one place at which the line should be drawn. Here, we are asking whether the line should not be drawn a little more in favour of the industry and a little less in favour of this immensely powerful authority. I believe that the authority will be adequately protected if its liability is confined to bad faith and recklessness, and I commend the amendment to the House.

Melanie Johnson (Labour, Welwyn Hatfield)

This subject has aroused considerable interest and was considered in detail by the Joint Committee, which broadly approved the immunity proposed by the Bill, subject to certain proposals to strengthen the complaints arrangements. We have followed those where appropriate. It is essential that we have a structure that allows the FSA to get on with its work efficiently and effectively, and the House recognises that that is important. A strong and accountable regulator must be in the interests of the industry and consumers alike. Immunity is vital for delivering that aim. Without it, the FSA could be frustrated by potential law suits and red tape. It would be very easy to have frivolous litigation or to distract or hinder the regulator from carrying out its duties, which could have a detrimental impact on firms as well. The absence of immunity could make the FSA more risk averse and engender a more formalistic regulatory environment. I am grateful to the House for supporting the notion of immunity in that context. There has been much discussion about the nature of recklessness and the contribution that the amendment would make to the Bill were it to be accepted. I have to say that I oppose the amendment. We want the FSA to be a dynamic regulator, and that might mean taking some difficult or finely balanced decisions in cases where the answers are not black or white. The authority should not have to run the risk of being sued as well.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I entirely agree with the hon. Lady's last sentence, but she must recognise that finely balanced decisions are a million miles from recklessness. We are discussing, to use the language of the courts, decisions reached with gross carelessness or with unacceptable indifference to the situation of the person affected. That is very different from a finely balanced decision.

Melanie Johnson (Labour, Welwyn Hatfield)

Like some of my hon. Friends, I am not sure what recklessness means in this context. It is a term with different shades of meaning in different contexts, and is primarily a concept in criminal law. The right hon. Member for Wells (Mr. Heathcoat-Amory) mentioned reckless driving, and recklessness does enter into driving matters. However, my recollection—from being on the bench as a magistrate—is that most charges relate to driving without due care and attention and driving dangerously, and do not feature the notion of recklessness.

Andrew Tyrie (Conservative, Chichester)

Will the hon. Lady give way?

Melanie Johnson (Labour, Welwyn Hatfield)

The hon. Gentleman has only just come back into the Chamber, so I am not going to give way. Had he wanted to participate in the debate on the amendment, he would have been here at the start.

Oliver Heald (Conservative, North East Hertfordshire)

The Bill contains within it the concept of recklessness, as clause 352 proposes to make it an offence for an individual recklessly to make a statement. Is not the main concern that a big important body such as the FSA will act in a high-handed way? In other words, it will recognise that there is a risk of damage to an individual but will go ahead anyway. That is the essence of recklessness. Why should there be immunity for acting in that way—the very thing we do not want the authority to do?

Melanie Johnson (Labour, Welwyn Hatfield)

The circumstances in which this matter could arise, were we to accept the amendment, may involve occasions when financial regulators and the FSA might have to make rapid decisions or decisions that could involve a difficult question of judgment which could have serious consequences for firms and for the wider regulatory environment. They must be able to do that without fear of being sued, either by a firm or by that firm's customers. I am sure that the House accepts that the interests of the FSA and of others who may wish to pursue the authority through the courts will not always coincide. The right hon. Member for Wells asked why the police did not have immunity for negligence. However, I have given the reasons why immunity from suit is important and I am not convinced that cutting back immunity, as the amendment suggests, is right. The police do not have immunity from damages claims for negligence. If we make a comparison with other countries and financial regulators overseas, we see that they have similar immunity to that proposed by the Bill. I am grateful to my hon. Friend the Member for Erewash (Liz Blackman) for her remarks on that point.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Am I not right in thinking that, in France, the regulator is liable for what is known as faute lourde? Is not faute lourde very similar to recklessness?

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful to the right hon. and learned Gentleman for his considerable knowledge of legal systems around the world, and I agree that comparisons are difficult to draw in all cases. However, in the United States, the Securities and Exchange Commission is immune from suit for anything done in carrying out its functions or duties—regardless of whether the actions are in good or bad faith—so long as it does not violate a clearly established constitutional right. That would be established by a court ruling. Probably the strongest comparison—France is not the strongest comparison—is with Commonwealth countries such as Canada and Australia, where the immunities are similar to that proposed in the Bill. Were the amendment to be accepted, it would potentially restrict the ability of the FSA to go about its business in the way that we want it to. Indeed, the present provision is similar to that provided for in the Financial Services Act 1986 and the Banking Act 1987, and the previous Government were instrumental in introducing the provisions for immunity in those Acts. That immunity was also supported by the late Lord Denning.

Quentin Davies (Conservative, Grantham and Stamford)

It sounds as though the Economic Secretary is about to complete her summary of the amendment. However, not only has she failed to deal with the issue of faute lourde, the French analogy to which my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) referred: she has not provided any rationale justifying the distinction between the Government's approach to the liability of the police and their approach to the liability of the FSA. What is the rationale for the distinction? The whole purpose of Report is to go through the Government's proposals and to learn their rationale for departing from existing practice in this country. Will she answer our concrete, precise question?

Melanie Johnson (Labour, Welwyn Hatfield)

I said clearly that I thought that comparisons with the French system did not hold water—there are too many differences. I thought that I had adequately covered the point about the police. I am sorry that the hon. Gentleman does not think that I did, but the police are in a very different position from the FSA for so many reasons that it is not difficult to imagine them. I shall wind up my remarks—the hon. Gentleman has almost invited me to do so—by pointing out that core principle 1 of the Basle principles on banking regulators recognises the need for the immunity of banking supervisors. We fully support that principle. We would weaken the FSA's ability to deal effectively and quickly with difficult and finely balanced decisions if we accepted the amendment.

Howard Flight (Conservative, Arundel and South Downs)

There is a huge body of law on the definition of recklessness. It is pointless our seeking to define it—we are not lawyers. However, to pretend that recklessness is not a clear legal concept is not right. As was pointed out, the concept occurs elsewhere in the Bill. In addition to the example given, it appears in clause 149, which deals with offences. Subsection (4)(b) refers to one who, recklessly provides information which is false or misleading in a material particular". The French concept of faute lourde means literally "heavy failing". Translated lawyer to lawyer, that means virtually the same as "reckless". As the Economic Secretary said, the United States Securities and Exchange Commission system is different, but it is by no means impossible to sue the SEC under the US constitution. That is a different approach to the one that we are discussing, but, as any US lawyer will say, the idea that the SEC enjoys immunity is false. There is a particular US approach to the issue.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Does my hon. Friend agree that if the Government do not give some ground, they are likely to fall foul of articles 6 and 7 and article 1 of protocol 1 of the European convention on human rights?

Howard Flight (Conservative, Arundel and South Downs)

I thank my right hon. and learned Friend. He is a lawyer, and that point has been made to me by other lawyers. The Government's hands will, in due course, be forced when an appropriate case is taken to the European Court. As was made clear in the previous debate, the position of the Burns committee is perfectly sensible. Either the exemption from immunity should be limited or there should be a full and proper system of complaint, award and recompense. The Government are resisting on both counts, and the one on which they should concede ultimately is debatable. However, a decision will be forced on the Government in due course. We shall not press the amendment to a vote because we made a point in the previous debate. The Law Lords are legally well qualified to sort out the issue in the other place and to insist on the point made by my right hon. and learned Friend. Although the issue will have to be resolved by one of the two routes that we have proposed, I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

LEGAL ASSISTANCE SCHEME

Stephen Timms (Labour, East Ham)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following: Government new clause 9—Provisions of the legal assistance scheme. Government new clause 10—Funding of the legal assistance scheme. Government new clause 11—Tax treatment of levies and repayments. Government amendments Nos. 135, 182 and 183.

Stephen Timms (Labour, East Ham)

The purpose of new clauses 8, 9 and 10 is to provide the Lord Chancellor with the power to establish a subsidised legal assistance scheme in cases before the tribunal that involve the imposition of penalties for market abuse. They fulfil a commitment that my hon. Friend the Economic Secretary made to the Standing Committee on 2 November 1999 and will be widely welcomed. In the light of consultation responses and evidence given to the Joint Committee chaired by Lord Burns, the Government reviewed the question of whether the market abuse regime should be categorised as criminal or civil for the purposes of article 6 of the European convention on human rights. We think that there are good arguments for characterising the regime as civil. Nevertheless, as a precautionary measure, we decided to introduce the convention's criminal protections for market abuse penalties. They include the provision of subsidised legal assistance where a person has insufficient means and where the interests of justice so require it. New clause 8 will give the Lord Chancellor power to establish the scheme by regulations and that will result in a free-standing scheme for legal assistance rather than an extension to the existing legal aid scheme. It also sets out the coverage of the scheme. Assistance is to be provided to individuals who have referred to the tribunal a decision of the FSA to impose a penalty for market abuse. That reflects the category of cases where we think the convention might require assistance to be provided.

John Bercow (Conservative, Buckingham)

New clause 8 may be entirely unobjectionable and could even be productive, but I am always anxious when reference is made, especially by this Government, to things being done by regulations. Will the Minister assure me that, when the draft regulations are issued, there will be an adequate period for consultation upon them before they are finalised and those associated with them have to come to terms with them?

Stephen Timms (Labour, East Ham)

I am grateful to the hon. Gentleman for what I thought was his welcome for the arrangements in the new clause. The Lord Chancellor will establish the scheme by regulations and I have no doubt that he will go through the normal procedures and provide adequate time for the discussion that the hon. Gentleman is quite right to say should take place. My hon. Friend the Economic Secretary told the Standing Committee that it was not our intention to make legal assistance available for tribunal cases across the board. Legal assistance is not generally available in tribunal proceedings, which are intended to be speedier and less formal than court proceedings. The Lord Chancellor's Department is currently considering the eligibility criteria; it is likely that the current conditions for legal aid in criminal cases will broadly be followed. If the criminal regime is adopted as a model, there will be two tests: first, an interests of justice test and, secondly, a means test. New clause 9 gives further examples of the sorts of matter that will have to be covered by the Lord Chancellor's regulations. For example, we envisage the scheme being administered by the Court Service, which will run the tribunal. Therefore, subsection (1) of the new clause allows the regulations to specify who is to determine applications for legal assistance. Other detailed matters will have to be set out in the regulations and it will be necessary for the Lord Chancellor's Department to specify the form that legal assistance may take. The funding of the scheme is dealt with in more detail in new clause 10. My hon. Friend the Economic Secretary told the Standing Committee that the scheme would be paid for by levies raised by the FSA from authorised persons. That is the effect of subsections (1) to (4). The Lord Chancellor will determine the cost of the legal assistance scheme and set the total amounts of the levy for a specified period—normally one financial year—required to be paid for by the levies; the FSA will decide on the distribution of levies on authorised persons. Because the levy will be raised through FSA rules, the distribution of the levy among different groups of authorised persons will be a matter on which the FSA will be required to consult in the usual way under clause 127. The Government have tabled separately several amendments in that respect. The cost of administering the scheme will come out of the running costs of the tribunal. In subsection (1), we have provided that the levy may cover anticipated or actual costs. The forecast of costs might prove to be an overestimate or an underestimate, so the arrangement we have made allows such matters to be sorted out at the end of the appropriate period. New clause 11 deals with the treatment for tax purposes of levies payable to the compensation scheme, the ombudsman scheme and the legal assistance scheme, all of which are to be set up in accordance with the Bill. It specifies that payments from those schemes to relevant firms are to be treated as trading receipts. That is achieved by inserting into the Income and Corporation Taxes Act 1988 the provisions set out in new clause 11. We have had to make that change because the current provision, clause 198, deals only with the tax treatment of payments to and from the compensation scheme. It does not cover the ombudsman scheme or the legal assistance scheme. Amendment No. 135 would remove clause 198, which is replaced by new clause 11, which covers all three schemes. Amendment No. 182 makes some consequential amendments to the Income and Corporation Taxes Act 1988. Amendment No. 183 repeals provisions in that Act and the Finance Act 1991. As the hon. Member for Buckingham (Mr. Bercow) said, it is likely that the series of changes we are making will be welcomed.

Howard Flight (Conservative, Arundel and South Downs)

We were advised of the new territories with which the new clauses deal, but we received details of the new clauses only recently. While we broadly support the intention behind the new clauses, they contain some deficiencies. Legal assistance is to be given only if the accused person has already gone through the FSA warning notice procedures and made representations. A person who carries out that process is likely to incur major legal expenditure. The Government have, in effect, accepted the probability that market abuse cases will be viewed as criminal under the European convention on human rights, but it strikes us that the scheme does not provide adequate legal aid for the whole process. 4.15 pm Also at issue is the fairness of the rather convoluted funding arrangements. Market abuse is an offence that can be committed by anyone, even if not an authorised person, and by firms outside the United Kingdom. Therefore, it seems rather unfair that the legal assistance scheme should be funded entirely by authorised persons, and strange that the FSA can require payments to the scheme to be paid only by a particular class of authorised person. We regard as unfair the FSA being able to make rules that excess receipts paid to it under the scheme should be distributed among only some of the authorised persons on whom the levy was imposed during the period in question. It is also unfair that sums can be applied to reduce amounts that those persons are, or will be, liable to pay to the FSA under the funding requirements "or otherwise". That wording appears to give the FSA the authority to apply excess receipts if a firm is liable to pay a fine—say, for market abuse or a disciplinary offence—but cannot afford to do so. Authorised persons will, in effect, have to pay the fines of defaulters. I doubt that that is what the Government intend. New clause 11 is fine up to a point. However, an award of costs under costs rules can be deducted in the case of an investment company, but apparently not in the case of insurance companies. What is the reason for that difference? Will similar provisions apply, under normal taxation rules, in the case of all other classes of authorised person? The new clause appears to deal only with the tax position in respect of investment companies. The big issue is clearly that of not providing legal assistance in respect of other offences. It is strange that the Government have accepted the risk on market abuse, but not on other matters in respect of which substantial fines can be imposed and individuals can lose their livelihood. Proceedings involving matters other than market abuse will be regarded as criminal proceedings under the European convention on human rights. The requirement in respect of legal assistance is spelled out expressly as a protection in cases of criminal charges, but it is also an aspect of the convention's requirement for a fair hearing. Therefore, legal assistance should be available, and not only because many cases other than those involving market abuse would be regarded as criminal proceedings under the convention. As the Government are aware, many eminent lawyers are of that view. Lord Hobhouse, who is a Law Lord, Lord Lester, who is a senior QC, and others in their chambers have made clear their belief that the FSA's disciplinary powers as they stand are in breach of the European convention. Lord Burns stated: Large fines imposed by the FSA could look punitive and that takes you into the world of criminal proceedings. In that case, it would be in breach of the ECHR. Lord Poole, chief executive of the Lloyds group, Ockham Holdings, has made similar comments. In our view, the Government are taking a considerable risk. When the Bill is enacted, it might be undermined completely by a case brought under the European convention on human rights. It would be wiser to address the issues up-front. The other technical defects and issues that I have raised will no doubt be addressed, debated and corrected in the other place. Without sounding petty, it would have been useful if this territory had been addressed in Committee, where amendments could have been tabled before reaching this stage of the Bill's consideration.

Stephen Timms (Labour, East Ham)

I thought that the hon. Gentleman might be more welcoming of the changes that we have made, which arose from commitments made in Committee. I do not agree that we are taking a high-risk approach. Indeed, I think that we are taking a precautionary approach by ensuring that legal assistance will be available in instances where conceivably it could turn out to be required. The hon. Gentleman asked me a number of questions, which I shall attempt to answer. First, he asked why authorised persons should be those who pay the levy and not others. Authorised persons stand to benefit most from the improved functioning of the market that will be brought about by the market abuse regime. They will be the beneficiaries of any penalties that the FSA imposes. We suggest, therefore, that it is right that authorised persons should be the ones who pay for the costs of legal assistance. I do not think that there is any reason for that burden to be shouldered by the general taxpayer, which I suppose would be the alternative. The hon. Gentleman asked about what happens if there is a surplus. In that situation the Lord Chancellor might either repay the excess to the FSA or reduce the amount that it has to levy the following year. If the excess is repaid to the FSA, it might distribute the money among those on whom the levy was imposed, or it might be offset against future levies or fees that those persons have to pay. I think that that is a sensible way to manage matters. The hon. Gentleman asked, "Why not go further and extend legal assistance elsewhere?" That was the central issue in his speech and he described it as the most important. I re-emphasise that the additional protections against market abuse are in place as a precautionary measure. There is not a need to extend the scheme further. We are clear that the disciplinary regime is not a criminal regime for conventional purposes, so a wider scheme of legal assistance is not needed. That issue was addressed fully in the memorandum that went to the Joint Committee on 14 May and in the evidence given on that occasion by the then Economic Secretary, with Sir Sydney Kentridge QC and James Eadie. We have stated our position clearly and unambiguously, and that remains our view today.

David Heathcoat-Amory (Conservative, Wells)

I am grateful for the Minister's response to the questions raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). However, I am not entirely satisfied because I think the Government are running a big risk in not extending subsidised legal assistance to those accused of serious offences under the disciplinary regime. We welcome the fact that the Government are bringing forward this assistance for market abuse cases, which is important. However, they seem to be relying heavily on their assertion that the disciplinary regime will not be judged to involve matters of a criminal nature, so that the appropriate protection for those accused of criminal offences will not apply in such cases. In reaching that conclusion, the Government have relied heavily on the fact that, potentially, market abuse offences can cover virtually the entire population. Anyone—even someone not regulated under the Bill—can be judged to be engaging in market abuse. As I understand it, however, disciplinary offences apply only to the regulated community. That gives the regime the character of disciplining a club; that is why a civil regime is appropriate. It is a large club, however. If anyone wants to earn their living in the financial services industry, they must register or, as it were, become a member of the club. As a layman, I rather doubt whether courts will continue to take the view that all fines, however large, that are levied on the regulated community are of a civil nature. The fines can be extremely large, and I believe would imply a penalty or punishment. If that is the position, I believe that at some stage a court will judge a matter subject to the disciplinary regime to be of a criminal nature. If that is the case, other safeguards must apply under the European convention on human rights. For example, if those accused are unable to pay for professional defence, they must be subsidised. That is natural justice. If someone is to be prosecuted by a professional, he must be defended by a professional. If the individual cannot pay for one himself, there is the legal aid scheme. That is what it is for. In setting up something akin to the legal aid scheme in the Bill, the Government are most unwise not to make provision to extend it.

John Bercow (Conservative, Buckingham)

I have no means of knowing whether my right hon. Friend is right in his anxieties. Surely the logic of what he is saying, if he is correct, is that the Government lawyers are not giving value for money.

David Heathcoat-Amory (Conservative, Wells)

I hesitate to criticise lawyers. We never know when we will need one. My hon. Friend makes a good point in that there is no doubt that the Bill has evolved under the impact of external legal advice. When the Bill was published in July 1998, it was undoubtedly at variance with the requirements of the European convention. I do not know whether that was because of faulty legal advice in drawing up the Bill. Better-qualified legal advice, or advice provided by more specialised quarters, has persuaded the Government to amend the Bill to bring it more into line with the requirements of the convention. That is why the Government have radically amended the market abuse provisions to provide greater clarity and to provide other safeguards. The Government have not, however, provided for safeguards in respect of subsidised legal advice and defence to be applied to the disciplinary regime as well. I feel that that leaves the Bill wide open. When the European convention becomes fully applicable in English law, which I think will happen later this year, it will be serious if a challenge succeeds. There is a mechanism for the Government to bring forward in short order an amendment to change the legislation, but meanwhile any cases that are before the courts, or pending, must fail. It would be a serious matter for the City, and the financial services industry generally, to be without proper legal cover. In that respect, the regulatory system would have failed while the Government brought forward further and better clauses. The Government are running a risk not only with their reputation but with the stability of the market. That is why the matter is serious. We did not debate the Ways and Means resolution. We allowed it to go through on the nod at the beginning of our proceedings in order to make progress. It is relevant to our discussion because the Government are to introduce a new tax on the regulated community through the resolution and the new clauses in the form of a levy. The money will go into the consolidated fund, and, somehow, come out again, when the Lord Chancellor will pay some of it back to the FSA, which may redistribute it back to the authorised firms and individuals if there is a surplus. That is an amazingly cumbersome system, and the Government have not explained why it is necessary. 4.30 pm If the provisions are accepted, the House will delegate the power to tax to the FSA. We must be cautious about that because an authorised individual—for example, an independent financial adviser—will be subject to a levy. That money will be used not necessarily for legal help for that adviser if he is accused of market abuse, but for his clients—members of the public who will pay nothing. That will happen because the scheme is not funded through general taxation but through the levy. People and firms will have to pay a form of taxation into a fund, which will be used in unspecified ways. We do not know the details of the scheme. It is another item that will be delegated to secondary legislation through our old friend the negative resolution procedure. This debate is our last opportunity to hear and agree the details, or at least to be told more about them. The way in which a legal aid scheme works, the sources of the funds, their application, and the criteria for eligibility for assistance are important matters of justice. The scheme will never come before the House because the order will be made under the negative resolution procedure. If anyone objects, the Government can say, "That's very interesting, but we won't debate it," and the scheme will become law. The Minister's comments have been light on substance. We knew that the scheme would be included on Report, but the details remain sketchy. As I said earlier, they involve the redistribution of money, compulsorily levied from people in the financial services industry. The Government owe us a slightly longer explanation.

Tim Loughton (Conservative, East Worthing and Shoreham)

I am sorry that I was not present for the earlier discussions on the new clause—I was called away. I want to add a few comments to those of my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). As I said when we started the debate, the details of the legal aid scheme were not available to the Committee that considered the Bill. As my right hon. Friend said, although great chunks of new clauses are being added at a late stage, an enormous amount of detail about the workings of the scheme is simply unavailable. I am especially worried about new clause 10, which outlines a large part of the new scheme. It establishes a strange, cumbersome structure whereby the FSA will raise a levy from members to pay the Lord Chancellor the relevant sum, which will then go into the consolidated fund. The Lord Chancellor will then fund the cost of legal aid from money provided by Parliament. That necessitates an equalisation fund for the refund to the FSA, and a complicated redistribution to its members. By the time everyone has had a pound of flesh, and taken a cut for the administration of the scheme, one wonders whether any money will be left for the scheme, or to refund the people who paid in the first place. There is a basic anomaly and injustice in the provision. It is unfair that authorised people alone will pay the levy for the misdemeanours of unauthorised people. There is also confusion about the period in which the Lord Chancellor decides how the equalisation repayments to the FSA and member firms will be made. Much can change in a year, and manipulation can occur. New clause 10(7)(a)(ii) poses a question about the equality of the redistribution to authorised persons because it refers to: such of those persons as it may determine". On what will such a decision be based? Will it be based on someone having the head of the FSA round for a rather nice lunch and his then deciding that that person should get a slice of the cake for which they paid in the first place? That is iniquitous and leaves the provision open to challenge concerning the equality of the treatment of member firms that have to stump up money. The method of redistribution could be entirely arbitrary. We need far more details. Decisions about refunds that are paid on account before the amounts are calculated also seem arbitrary. The excess receipts could be calculated against a firm's potential fines. Contrary to the rule that one is innocent until proven guilty, a firm is considered a potential member of the sin-bin pool before being identified as possibly having committed some misdemeanour that may be investigated by the FSA. That turns the code of natural justice on its head and will be open to challenge under the convention on human rights.

Stephen Timms (Labour, East Ham)

Who, in the hon. Gentleman's opinion, should pay for the legal assistance scheme, if not the authorised persons?

Tim Loughton (Conservative, East Worthing and Shoreham)

It is not my job to specify that. I have not objected to a levy for a legal aid scheme. I have not said whether I believe that the scheme is right or wrong. Throughout our proceedings in Committee, I did not say whether it was right or wrong in principle. I simply questioned how it would work. I do not say that we should not have such a scheme. It has great merit, and, if run properly, is probably fair. However, the scant proposals that we have been given do not provide for equality. In the old days of the stock exchange, there was a mechanism called the PTM levy—I must be careful to get the initials in the right order. It stood for the panel of takeovers and mergers. A levy would be added to everyone's contract. That was considered a fair way of raising money for a group that operated in part of the City's structure. People did not object to it. Could the levy that new clause 10 proposes function in the same way? How will firms pay for it? Is there a mechanism to prevent firms that have to pay an indeterminate levy from adding a legal aid fund levy to contract charges for their clients? If that happened, the clients would pay, quite transparently, for the legal aid process. Is that permissible? It is an obvious way of proceeding. As with so much of the measure, the clients, who apparently need extra regulation, will end up paying for it. How does the Minister envisage companies funding payment of that levy, and could they issue a contract surcharge on their business, whatever sort of business, equity transactions or insurance business they carry on? Is the cost of the levy completely open ended? Will it be capped or could it double one year and treble the next? An awful lot of money could be involved, depending on the amount of legal activity that is to be financed. Smaller firms could have to find a considerable sum, which would affect their ability to carry on their business. I wanted to raise those questions, but the fundamental point is that we still lack an awful lot of detail. It is all very well for the Minister to say, "What would you do?", but I am not criticising the basic structure or the basic approach that the Government appear to be adopting. I want to be convinced that the proposal will work properly and fairly and that its extent can be properly defined, but I fear that nothing I have heard suggests that I can be assured on any of those questions.

Stephen Timms (Labour, East Ham)

I am still listening eagerly for a welcome from Conservative Members for the changes that we have made in response to points raised with us. Their welcome still sounds rather grudging, although the hon. Member for East Worthing and Shoreham (Mr. Loughton) said that the arrangement could be fairly fair so perhaps we are making progress. He asked about the details, and the hon. Member for Buckingham (Mr. Bercow), who was present earlier, was absolutely right about them: it is important that there should be consultation. That is a matter for the Lord Chancellor, who will consult in due course. I do not want to go back over old ground, but I shall respond to some of the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for East Worthing and Shoreham. The arguments pushed in two conflicting directions: we were being urged to give the scheme a wider embrace and criticised for the way in which it will be paid for, but no alternative was suggested. I think we have the balance right, but I want to address the serious charge that there is risk in what the Government are doing. I do not believe that that is the case. The right hon. Gentleman fairly and accurately described our position, which is that the disciplinary regime does not deal with criminal conduct, but suggested that we were treating it like club. The right analogy is with the regulation of professions, on which the jurisprudence is absolutely clear: such regimes are civil. That is the basis on which we are proceeding. Question put and agreed to. Clause read a Second time, and added to the Bill.

PROVISIONS OF THE LEGAL ASSISTANCE SCHEME

FUNDING OF THE LEGAL ASSISTANCE SCHEME

TAX TREATMENT OF LEVIES AND REPAYMENTS

Levies and repayments under the Financial Services and Markets Act 2000

Levies and repayments under the Financial Services and Markets Act 2000: investment companies

REPORTS BY DIRECTOR GENERAL OF FAIR TRADING

Melanie Johnson (Labour, Welwyn Hatfield)

I beg to move, That the clause be read a Second time.

Melanie Johnson (Labour, Welwyn Hatfield)

These new clauses and amendments are part of the package of changes that we are making in response to Don Cruickshank's interim report on banking services, which helped us to identify a number of useful amendments that we could make to improve the FSA's internal processes in taking account of competition and to strengthen the external scrutiny arrangements. I set out what we intended to do in Standing Committee A on 9 November. We shall also table similar amendments to the analogous regime for recognised bodies and that proposed for the competent authority for listing. I could run through, at great length, how the process will work, but it might be helpful if I focus on particular aspects. If Conservative Members have queries that are not resolved, perhaps they will raise them. I begin with the role of the Treasury in respect of new clause 29. The Competition Commission, when it has considered a report from the director general, will produce its own report, except where it feels that that is not necessary. If the commission concludes that there is no significant anti-competitive effect, that will be the end of the matter. If it concludes that there is significant anti-competitive effect and that is justified, it will state that in its report. Where the commission concludes that the anti-competitive effect is not justified, it will recommend changes to the FSA's regulating provisions or practices in its report. The Competition Commission's conclusion will not be subject to routine second guessing by Ministers. It will stand, except where the Treasury considers that exceptional circumstances cause it to reach a different view. We can envisage a Treasury override being triggered when it is necessary to meet our international obligations—for example, to give effect to European Community legislation—or when the Treasury thinks that there would be significant implications for the operation of the financial system as a whole if the changes were to be made. In the unlikely event of its exercising that override, the Treasury will have to publish a statement of its reasons and lay that before Parliament.

Andrew Tyrie (Conservative, Chichester)

Those remarks are close to those the Minister made in Committee when we did not have time to absorb them, although we have subsequently done so. New clause 29(3)(a) says that the Treasury may set a direction aside if it considers it unnecessary for them to give a direction as a result of action taken by the authority. Can she explain the purpose of new clause 29? No reference was made to it in Committee.

Melanie Johnson (Labour, Welwyn Hatfield)

I am looking for the new clause in my amendment paper; perhaps I can return to that matter. When the commission finds that an anti-competitive effect is not justified and there are no grounds for an override, the Treasury will do whatever it thinks necessary in the light of the Competition Commission report. In taking action, the Treasury must have regard to the Competition Commission's opinion when deciding what to direct the FSA to do. The Treasury must also have regard to the views of the FSA and other interested persons when considering whether to give a direction. Those new arrangements will ensure that, other than in exceptional circumstances, it will be the Competition Commission, not Ministers, who will come to the decisive view on whether anti-competitive effects are justified.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Can the Minister clarify what seems to be a fundamental question? When we talk about competition and anti-competitive effects, are we talking about the competitiveness of the United Kingdom financial services market as against the French, New York or Frankfurt markets, or are we talking about distortions of competition within the UK market?

Melanie Johnson (Labour, Welwyn Hatfield)

Basically, we are talking about distortions of competition within the UK market. I shall come to the issue of international competitiveness, which the right hon. and learned Gentleman raised earlier, when I reach Opposition and other amendments that relate more closely to that issue. As I said, generally, it is not Ministers who will reach the decisive view on whether claims of anti-competitive effects are justified. Where exceptional circumstances cause Ministers to override the Commission, the Bill provides for a high degree of transparency. Of course, we expect that the relevant Select Committee would wish to question Ministers in more detail about use of the override, but who in this House would wish to suggest that a Select Committee did anything in particular? The other part of this package of amendments is a change to the competition principles in clause 2. These principles are at the heart of the processes that the FSA goes through when making regulatory provisions and otherwise discharging its general functions. If the processes work as they should, the external scrutiny arrangements should be academic. Perhaps I can come on to the "have regard to" phrase in the chapeau to clause 2(3). We undertook in Committee to look at whether this is the right formulation and carries sufficient weight to ensure that the FSA takes full account of the principles in discharging its general functions. As I explained in Committee, the objectives and principles must be considered together. The objectives are about the aims and purpose of regulation. The principles are about the manner of regulation. They are, in effect, statements about good regulatory practice and act as constraints on over-regulation. In determining how to discharge its general functions, the FSA will go through a single process in order to come up with the right result. It will consider the clause 2(1) objectives together with the clause 2(3) principles in discharging its general functions—that is, in making rules and guidance and in coming up with its general policies. We have explored with the draftsmen whether the "have regard to" formula is the right one to describe what we want the FSA to do in respect of the principles in this process. We want something that requires the FSA to give proper weight to the principles and to ensure that it takes them properly into account but, at the same time, does not expose the regulators to tactical litigation on individual regulatory decisions. Exploration of these issues has led us to the conclusion that the current formulation strikes the right balance and that it is clear that the FSA must give proper weight to the principles. To pay lip service to them will not be enough. Clearly, however, it would be nonsense if the FSA were under an obligation to go through the objectives-principles balancing process every time it takes a decision on an individual case. As well as being pretty much an impossible task, it would open up the scope for judicial review of individual decisions. For example, the FSA could be challenged on whether it is right to engage in an advertising campaign to improve consumer awareness or whether it is employing too many people on the pensions review. If there were a significant risk that the FSA would have to contest actions for review at every turn, it would be a serious impediment to good regulation. The Joint Committee agreed with this when it concluded that the objectives and principles should apply at the level of general policy and principles, rather than directly to every single act and decision of the FSA. Naturally, it is important that the FSA is accountable for its decisions. Judicial review of whether it is carrying out its legislative and general functions in accordance with the requirements of clause 2 will be possible. Our carefully considered view is that the current formulation and structure is the right one. It will not be enough, as some have suggested, for the FSA to pay lip service to these principles. The FSA must give the best effect it can to them. That is the nature of the duty. The "have regard to" formulation is not new. It applies in other legislation in similar contexts, for example, in the Coal Industry Act 1994 and the Civil Aviation Act 1982. It is fair to say that the statute book is peppered with requirements for people to "have regard to" X or Y when carrying out their duties, and have regard to these things they must. It is a strong requirement. We also undertook to look again at the competition principle in clause 2(3)(f). We agree with Don Cruickshank that it is vital that competition concerns are given proper weight by the FSA. Amendment No. 240 introduces changes and does three things. First, it introduces a more positive principle as regards the adverse effects of competition. Rather than the principle being that the competition should not be impeded or distorted unnecessarily, it now makes it clear that the FSA must consider how to take active steps to minimise the adverse effects on competition. Secondly, the amendment removes the reference to authorised persons. In exercising its general functions, the FSA can do things that impact on other groups. For example, it could make a rule requiring authorised persons to use the services of a particular software provider or telecommunications firm. Where things do impact on other groups, the FSA should take care to minimise the adverse effects on competition. Thirdly, the amendment requires the FSA to have regard to the desirability of facilitating competition between those subject to regulation. That recognises that there are things that the FSA can do in regulating which are sensible for a financial services regulator to do and which will make it easier for firms to compete. The new principle is designed to make the FSA think hard about what it can do to facilitate competition between those it regulates. It makes it clear that it will have to address the question of how, through different ways of regulating, it could remove unnecessary barriers as well as not erecting them in the first place. On amendment No. 30, there is no doubt about the importance to the economy of the financial services sector. I share the concern that it should continue to be vigorous and effective. I understand and fully agree with the aim, but the amendment is not the way to achieve it. It would not be appropriate to give the FSA such an objective. Although the FSA is responsible for creating and maintaining a regulatory framework in which a vigorous and effective market can exist, it is up to the market itself, through competition and innovation, to maintain its vigour and effectiveness. The FSA must not, of course, put up unnecessary barriers in the way of that, or rip down necessary barriers. Under-regulation and over-regulation both have adverse effects, but the regulatory objectives and principles that the Bill gives the FSA are aimed at ensuring that it arrives at the right level of regulation, which keeps costs down while maintaining the confidence of consumers and the integrity of the markets. That is what the FSA can do to help to maintain the vigour and effectiveness of the UK financial services industry. The rest is up to the industry itself. On amendment No. 192, as I said in Standing Committee a number of times and as I am sure everyone accepts, competition and competitiveness are different. The amendment seeks to combine them. The bodies responsible for competition regulation in the UK are the Office of Fair Trading and the Competition Commission. Their responsibilities extend throughout the economy. It would be their responsibility to investigate and to deal with, for example, a suspected cartel of insurance companies in the same way as a suspected cartel of supermarkets. The FSA is not a competition regulator, but is concerned with the prudential supervision of the financial services industry and the protection of consumers. If it had a competition objective, it would have to duplicate and, potentially, interfere with the job that is already done, and done well, by the OFT and the Competition Commission. That would be a recipe for total confusion. That does not mean that the FSA has no interest in competition. It must always be aware of the danger that, in regulating, it might unnecessarily restrict competition. That is why we have provided in subsection (3) that it "must have regard to" that matter and why we have backed that up with the special competition scrutiny regime in part IX.

Andrew Tyrie (Conservative, Chichester)

The hon. Lady says that competition and competitiveness are fundamentally different. In a sense, they are because competitiveness is concerned with overall economic performance, but could any action be taken to improve competition that would be deleterious to competitiveness?

Melanie Johnson (Labour, Welwyn Hatfield)

I do not think the two things link in that simple way. I should like to come back to another point that the hon. Gentleman raised with me, but it does not fit very well here, so may I finish dealing with competitiveness? Competitiveness is another area where primary responsibility does not lie with the FSA. Instead, the international competitive position of the UK financial services industry will be maintained by the same people who built it: financial service businesses. 5 pm It is not clear what role the FSA will have to take on in promoting competitiveness, but if it entailed the FSA trying to pick winners among United Kingdom firms or telling them how to run their businesses, it would be more likely to do harm than good. However, I am not saying that the FSA has absolutely no interest in competitiveness. We realise that, as with competition, the way in which the FSA regulates can have an impact on competitiveness, and subsection 3(d) requires the FSA to have regard to that fact. However, as I said, such a requirement is very different from a competitiveness objective. The hon. Member for Chichester (Mr. Tyrie) asked about the purpose of subsection 3(a) of new clause 29. The paragraph deals with situations in which, as a result of a Competition Commission report, the FSA decides to abandon the rule or practice that has been condemned. If the FSA acts to abide by the commission's conclusions, there is no need for the Treasury to give a direction. New clause 29(3)(a) allows for that position. It deals with situations in which action has been taken. The Opposition have suggested, in amendment No. 49, a formulation to be inserted in the "seek to" formula. That formulation would require the FSA to take action to try to achieve the objectives in clause 2(3). I agree that that is what we want the FSA to do, and I am grateful to Opposition Members for confirming that that is also how they want the Bill to work. However, that is also the effect of the "have regard to" formula, and the "seek to" wording does not really work with the other provisions of clause 2. It makes no sense, for example, to talk about the FSA "seeking to impose burdens or restrictions on a person" or "seeking to impede or distort competition", regardless of the wording that follows. The second change that the amendment would make is to require the FSA to seek to ensure that it does not intrude unnecessarily in the commercial affairs of authorised persons—I assume that "such persons" refers to authorised persons. Although that is certainly part of what the principle is about, it is not the only thing. Additionally, I am not convinced that it would be very helpful to spell out the various elements in that manner. Amendment No. 49 also seeks to address the issue of facilitating innovation, and the desirability of doing so. It would provide that the FSA should seek to ensure that it does not unnecessarily impede innovation. Although that is clearly an important consideration, it is covered adequately by the existing principle in the Bill and by other principles. If the FSA has regard to the desirability of facilitating innovation, it should not do things that unnecessarily impede it. Earlier, I said that I was sympathetic to the general provisions of Opposition amendment No. 232. Although I ask the House to reject that version of the provision, I repeat my assurance that similar provision will be made—requiring that the director can request only information that is relevant to his investigation, and reproducing a provision on documents currently in the clause—and that, later in the Bill's passage, we shall return to the issue and make changes if we think that they are necessary. I hope that hon. Members will support the Government's new clauses and amendments in this group and oppose the Opposition amendments.

Michael Spicer (Conservative, West Worcestershire)

Collectively, the Government new clauses and amendments in this group are quite admirable in their intent. The problem is that they are completely in conflict with the majority and thrust of the Bill. Clause 2 lists market confidence, public awareness and consumer protection as the regulatory objectives. Clauses 3 to 6 set out the details of the regulatory objectives. I still do not understand what promoting awareness will mean in practice for the FSA, but clause 5 covers the protection of consumers and specifies that the FSA must have regard to the differing degrees of risk involved in different kinds of investment or other transaction … the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity … the needs that consumers may have for advice and accurate information". In other words, the Bill conflicts with the Government amendments and new clauses that we are discussing. It gives the FSA powers to intervene in the market, and even to promote and develop particular products, in the interests of consumer protection. If the new clauses and amendments are passed, the Director General of Fair Trading will go rushing off to promulgate competition, but he will be pulled back because the Bill will require the FSA to intervene and distort the market—the opposite of competition. The regulatory regimes that the Government are imposing right across the commanding heights of the British economy use the words—and often the institutions—of the previous, Conservative Administration. The Government amendments use words such as "consumer" and "competition", but they would achieve and impose the opposite of what the previous Government had in mind. The concept of fuel poverty, for example, is no doubt admirable, but it is being imposed as an overriding objective for the electricity regulator. Similarly, Oftel has been burdened with the concept of total coverage, and the Post Office with that of social obligations. Even the FSA is required to engage in the concept of social banking. Such notions conflict with the objectives that the Conservative Government set for the regulatory bodies. The amendments are a perfect example of how we are seduced into believing that the Bill is about competition rather than its opposite. The intervention proposed in the Bill is the exact opposite of what is proposed in the amendments. The previous Administration set up the regulatory bodies with competition as the primary objective. When I took the Bill to privatise the electricity industry through Standing Committee, it was clearly understood that competition and the protection of competition was the Bill's primary objective. The Conservative Government privatised the utilities across the board. The intention was that, once they began to benefit from competitive pressure, the regulatory bodies would begin to withdraw and retract. Control of the utilities and the interests of consumers would be left to market forces. In the electricity industry, for example, the regulatory regime became lighter as competitive pressure built up. However, the exact opposite is happening under this Government, and that is illustrated by the Bill: as competitive pressures increase, the Government's objectives move away from allowing the marketplace and competition to work and towards greater intervention. It is precisely because these clauses will be made totally ineffective—I would say because of their hypocritical nature—that I object to them. They form, as the whole Bill forms, part of a panoply of new parallel government which is being set up throughout the commanding heights of the economy. It is socialism by the back door, nationalisation by the back door, and control and intervention by the back door, through the regulatory regime.

Nigel Beard (Labour, Bexleyheath and Crayford)

The clauses that so aggravate the right hon. Gentleman are there to provide for a watchdog over the Financial Services Authority, so that nothing it does unnecessarily impedes competition. That seems to be entirely reasonable. It divides the role on competition between the FSA and the Director General of Fair Trading. I do not understand why the right hon. Gentleman sees such dire consequences arising from what is plain common sense.

Michael Spicer (Conservative, West Worcestershire)

For the precise reasons that I have given, the entire thrust of the Bill is in opposing directions. The objectives set for the FSA, in particular, are entirely opposite to that of competition. To have a fig leaf in the form of the new clauses will make it extremely difficult for the bodies that exist to oversee the tribunals and the various review arrangements in the Bill for overseeing the FSA. It will be extremely difficult to come to a judgment in terms of the law that we are passing, because the whole thrust of the Bill is in the opposite direction to competition; it is in the direction of protectionism and interventionism. Therefore, at the very best it will make it extremely difficult for the tribunals, other bodies and fair trading organisations to take a view, because, if we pass the Bill, they will face legislation the thrust of which is in opposing directions. The Bill does not mention competition at all among the objectives of the FSA set out in clauses 2, 3, 4 and 5. I would argue that the objectives are exactly the opposite to competition, for the reasons that I have given. At the very best, the Bill makes it impossible for the adjudicating bodies—there are one or two points where they are in the Bill—to take a view. At worst, it provides a fig leaf for the continuation of a regime that the Government are setting up across the board of regulation, which has as its objective not competition—though it uses the word often, just as it uses the words "consumer protection" and "consumer"—but the opposite: the imposition of political objectives that have to do with income redistribution, protectionism and interventionism. I object to the new clauses being introduced as a fig leaf for a policy that thrusts in the opposite direction to that which the Government profess.

Howard Flight (Conservative, Arundel and South Downs)

Even the Government must have perceived some of the fundamental truth in the comments of my right hon. Friend the Member for West Worcestershire (Sir M. Spicer). I recollect a conference organised just before Christmas by the Treasury to focus on the arguments about the regulation of mortgages, where it was duly noted that the large players in the industry were asking to be regulated. An ironic comment was made by a certain senior Treasury official. The large players welcome regulation. It raises the threshold of entry enormously. The innate tendency on regulation is towards consolidation and cartels. This point has been grasped very powerfully by Don Cruickshank, which is why he, like us, has called for the competition theme to be included in the key territory of objectives. Let me get rid of one Government argument in the other direction, which is invalid. It is nothing to do with the concept of the FSA's being a regulator of competition. It has to do with the simple proposition that the objective of the rules and conduct of the FSA, and the way in which it handles them, should be to avoid doing things which damage either domestic competition or the UK's international competitiveness. 5.15 pm The Government seek to buy off Don Cruickshank by means of what strikes me as an over-complicated mechanism, proposed in new clauses 27, 28, 29 and 32. The first reference to the proposals was made by the Chancellor of the Exchequer in his green Budget statement. This is yet another example of spin that turns out to be different from the reality. The Chancellor suggested then that the Competition Commission would be established as an independent body to direct the FSA to change rules that were damaging to competition, adding the footnote that the Treasury would have a reserve power. The Bill, however, makes it clear that the commission will be piggy-in-the-middle between the Office of Fair Trading and the Treasury, and that only the Treasury is empowered to tell the FSA to change rules. Moreover, that power is hedged around. If the Treasury considers that there is a case for retaining a rule that protects consumers in regulatory terms, it will opt for retaining it even if it is uncompetitive. That brings us full circle. Unless one of the FSA's key instructions from the public via Parliament is that it must do its best not to produce anti-competitive rules and regulations, it will tend to do anti-competitive things. It is ludicrous to set up all this complicated machinery involving the OFT, the commission and the Treasury without giving the FSA the right brief in the first place. While I hope that the machinery will lead to some useful analysis, it will undermine itself unless the FSA is given the right brief. Amendments Nos. 192 and 30 deal with that. We will not press amendment No. 30, which I confess was tabled in the fear that amendment No. 192 might not be accepted. Amendment No. 192 makes our point. It deals with both domestic competition and international competitiveness, an issue that the OFT/Competition Commission machinery ignores. The United Kingdom's financial services industry has become our biggest employer, biggest exporter and biggest contributor to gross national product.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

When my hon. Friend said that the proposals for the Competition Commission ignored the issue of international competitiveness, the Minister shook her head, suggesting that he was wrong. I believe that he is right. Perhaps he will elaborate.

Howard Flight (Conservative, Arundel and South Downs)

I thank my right hon. and learned Friend. I was about to elaborate. The Government seem not to have made provision for what the Opposition want: the establishment of a unit in the OFT to monitor the international competitiveness of British regulations as against those of the United States, France or Switzerland, particularly for international business. Nor have they provided for either the commission, as originally suggested, or the Treasury, to be directed to change rules if they are found to be severely damaging our international competitiveness. I at any rate can find no such provision. I recollect a reference to the Competition Commission having to be aware of international competitiveness, but cannot remember where I saw it. The huge recovery in Britain's international financial services industry in the past 30 years has rested on extremely competitive tax arrangements, technical ability and software administration. Those are all delicate matters. That is why the Chancellor of the Exchequer has fought so strongly to keep us out of the net of the European withholding tax. That is why the Government will have to change stamp duty arrangements—business will leak away elsewhere if we have an expensive stamp duty. If our regulation is unclear or too expensive, or if it does not provide clear, safe harbours within its rules, a lot of international business will go to, or go back to, New York and other financial centres. How our regulatory regime compares with others is immensely important to employment and the prosperity of the industry. As Howard Davies has so often said, good regulation is an asset; bad or unclear regulation a liability. If there is a serious desire to control the inevitable tendency of regulation to lead to a lack of competitiveness and to create cartels and consolidation, the regulator must have an upfront brief as an objective not to do that, which will be as important as his other objectives. We welcome the proposed monitoring, and will see how it goes, but to have such an expensive and complicated mechanism simply to monitor domestic competition and not international competitiveness is to miss out half the key point.

Jim Cousins (Labour, Newcastle upon Tyne Central)

I am following the hon. Gentleman's argument and am studying the proposals in amendment No. 49 extremely closely. If the amendment were accepted, would it encourage the Financial Services Authority or the relevant competition authorities to regulate such matters as, for example, the introduction of charges by bank cartels for access to their cashpoint machines, or would it deter them?

Howard Flight (Conservative, Arundel and South Downs)

I was actually talking about amendment No. 192, the key amendment, which would add competition and competitiveness to the list of objectives. Amendment No. 49, which the Minister has referred to as our "seek to" amendment, is designed to beef up the second part of clause 2, which deals with principles. The phrase "have regard to" in the clause as drafted is extremely woolly. Indeed, although the FSA repeats that phrase in its literature and brochures, it has made it very clear that it views the objectives as far weightier than the so-called principles. Secondly, I think that the part of the amendment to which the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) may have referred is that which calls upon the regulator not to interfere unduly and unnecessarily in the internal management of businesses. However, it all depends on the justification. If a bank cartel charges in a cartelised fashion, the regulator has every justification for interfering.

Jim Cousins (Labour, Newcastle upon Tyne Central)

May I draw the hon. Gentleman's attention to paragraph (b) in amendment No. 49? Does he understand that as inhibiting the capacity of a regulator or a competition authority to deal with such matters as charging for access to cashpoint machines? The provision would seem to have that effect.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Gentleman is referring to the provision that I mentioned. The amendment calls on the authority not to interfere unnecessarily in the management of the commercial affairs of the businesses or persons whom it is regulating. The provision is clear; in no way would it fetter the activity of the regulator, where the regulator perceives the operation of cartelised pricing practices. Indeed, as I have pointed out, the real problem is that regulation encourages such cartelised practices. The purpose of the amendment is clear. If the FSA was carrying out its regulatory duty, and if it were set to do its competition duty, it would get on with it. If the authority extended its activities beyond that, as is the tendency of bureaucracies, it would be restrained. Under the provision, competition is required to be an objective; in many cases, the right action of the FSA depends on competition being an objective.

Michael Spicer (Conservative, West Worcestershire)

The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) wants to intervene, to stop people doing things and to run things by bureaucracy, whereas my hon. Friend is making a brilliant case that it all depends on whether the practice is anti-competitive. If there is a purely commercial judgment, in which transparency comes into charging, that is good, if it would improve competition. My hon. Friend is correct to draw that distinction. Labour Members do not want to make that distinction; they want to interfere come what may.

Howard Flight (Conservative, Arundel and South Downs)

The point is clear.

Jim Cousins (Labour, Newcastle upon Tyne Central)

Will the hon. Gentleman respond to the point made by his hon. Friend the Member for West Worcestershire (Sir M. Spicer)? Is it the policy of the official Opposition that charges should be introduced for access to cashpoint machines, in the interests of transparency of costing?

Howard Flight (Conservative, Arundel and South Downs)

The hon. Gentleman seems to be intervening in a most incoherent fashion. I have made it clear that the policy of the Opposition is, first, in favour of competition, which represents an important protection for consumers. Secondly, in attempting to get the measure right, there is a risk that regulation will damage competition, in exactly the ways to which the hon. Gentleman referred—thus the need for competition as an objective. Thirdly, as the measure is about checks and balances, it is unreasonable for the regulator to have powers to ferret into businesses, other than where justified under its objectives. If part of its objective is that it is supportive of competition, it would be empowered in the whole matter of banking cartels. The hon. Gentleman may be surprised to learn that the person whom the Government have appointed to examine banking competition, Don Cruickshank, entirely agrees with our views. The compromise is insufficient to achieve his objective of the more competitive banking system that we and the hon. Gentleman want.

Nigel Beard (Labour, Bexleyheath and Crayford)

Such arguments have been rehearsed before. On each occasion, the case made against including competitiveness as an objective of the Bill is that under the Competition Act 1998 there exists the Competition Commission. To give authority for regulating competition to the FSA in respect of financial matters would mean two organisations regulating one sector of the economy, which could lead to nothing but muddle. The second argument reflects the importance of competition, which is acknowledged by hon. Members of all parties. It is far more powerful to have a separate watchdog over the FSA's activities that takes steps to regulate competition when a breach occurs than to incorporate safeguards in the organisation that we want to avoid breaching competition. Those arguments have never been answered by the Opposition in their continual efforts to promote the idea that competitiveness is neglected.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Member could not have been listening. We are not calling for the FSA to regulate competition. We argue that in its rule making, a key objective should be not to regulate in a way that damages competition or international competitiveness but in a way that increases competition. That has nothing to do with the role of a competition regulator. We entirely agree that the Office of Fair Trading and the Competition Commission should cover that territory. It would be extraordinary to incur the expense and burden of the OFT and commission in monitoring to ensure that the FSA is not making rules damaging to competition if it is not a priority instruction to the FSA to avoid so doing. That is just making jobs for people by having the FSA wrongly briefed. That is a clear answer to the bogus argument about making the FSA a competition regulator. We are reasonably happy with the machinery, although we question what the Competition Commission adds. We imagine that OFT investigations will be at a more general level and the commission will undertake something more in-depth before passing a recommendation to the Treasury. That would put in another process which might not be entirely necessary; but reviewing competition to secure against anti-competitiveness is a good and sensible objective. We believe that there should be a parallel requirement in respect of international competitiveness. To complete the logic of the scheme, it needs to be made clear to the FSA that its regulation is to be competition friendly rather than unfriendly and competitiveness friendly rather than unfriendly.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

This is the most important debate on Report and we are focusing on the most important subject that is at all controversial. I say, I hope with reasonable humility, that there is serious misunderstanding in this Chamber and the Government of the distinctions between competition and international competitiveness. The roles that the Competition Commission and the Director-General of Fair Trading are being given by the Government—which we welcome—have nothing to do with international competitiveness. I should be grateful if the Economic Secretary would nod to show that she recognises that, and to show that she recognises that they are concerned with the avoidance of distortion of or interference with competition in the UK market. That is their function under the Competition Act 1998. Those bodies have two main functions—the avoidance of cartels and anti-competitive agreements, and the avoidance of businesses being able to exploit dominant positions. It is desirable that nothing in the regulatory system that the Bill proposes should distort competition within the UK. That much is desirable, and I support the Government's new clauses on that matter. That is not the issue between the Government and the Opposition. The issue is the promotion of the UK market and its international competitiveness with the United States, Japan, France and Germany. It is important to decide whether, as we say in amendment No. 192, the maintenance of competition and promotion of UK competitiveness should be made an objective in the Bill. We say that it should, as that is fundamental to the success of the City of London and of the financial services industry that the FSA will regulate. That will be to the benefit of consumers here and worldwide. If we have a healthy, vigorous and competitive market, consumers in this country are likely to get better value. I should have thought that, with new Labour, there could be agreement that vigorous competition is, in the end, the best regulator. It should not be the only regulator—we are not arguing for that. However, it is the best of all, and I am pleased to see that the Economic Secretary and the Financial Secretary agree with that sentiment. What follows from that common recognition is that that matter should be an objective under the Bill. We should not deceive ourselves.

Melanie Johnson (Labour, Welwyn Hatfield)

indicated dissent.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The Economic Secretary is now shaking her head, but I ask her to listen for a moment. Why is it not good enough that the proposal is simply what is described, rather grandiosely, as a principle under clause 2(3)? Why is it necessary—in my opinion and that of my hon. Friends—that it should be an objective in clause 2(2)? This is fundamental to the structure of the Bill and to what we are seeking to create. There is an important difference in the wording between clause 2(2), which deals with the objectives, and clause 2(3). Clause 2(1) states that the FSA must so far as is reasonably possible, act in a way which is compatible with the regulatory objectives". Clause 2(2) sets out the objectives, and clause 2(3)—which deals with what some have called the principles—says that the FSA must "have regard to" the principles. Paragraphs (d) and (e) are the key. Paragraph (d) refers to the desirability of facilitating innovation in connection with regulatory activities", and paragraph (e) refers to the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom". We must recognise how much weaker the words "must have regard to" are when compared with the words must, so far as is reasonably possible, act in a way … which is compatible", which are used about the objectives. The words relating to the objectives are intended to be stronger—and they are stronger. The fact that they are intended to be stronger means that each of the four objectives that are set out in clause 2(2) is specifically analysed and expanded upon in clauses 3, 4, 5 and 6. The objectives are market confidence, public awareness, the protection of consumers and the reduction of financial crime—all worthy objectives which we support. However, it must be remembered that all those objectives will tend to increase the weight of regulation and the requirement on the authority to ensure that it—I almost said darned well—regulates. Clause 2(3) then tells us that the authority must have regard to other desirable aims, including our international competitiveness. However, that is put too low. The Minister replied with a carefully crafted portion of her speech. I realise that it was rightly pored over by her advisers. She said that the Government had reconsidered everything and thought that it was right and adequate simply to mention the competitive position of the United Kingdom as something to "have regard to". That puts the aim far too low. Let me meet what might be the counter argument. One could argue that if maintaining our competitiveness was an objective, it would make the other four objectives impossible to achieve. That argument does not hold water. If one had five objectives instead of four, with the maintenance of the competitive position of the United Kingdom as one of them, one would set exactly the right balance. In a sense, one would lift a little bit of responsibility off the FSA. If the FSA under-regulates at present, it can be criticised for failing to meet its objectives. However, if it over-regulates, it will at least meet them. If one points out that it does not have regard to the desirability of international competitiveness, it will say that it paid regard to that, but that it had to strike a balance. That will result in over-regulation. Why is that approach damaging? I want to refer to a speech made recently by the Lord Mayor of London, when he described in simple statistical terms the relative competitive positions of the City of London and of our competitors in New York, Frankfurt, Tokyo and so on. If London had a base figure of 100, the costs of doing business in New York were said to be 117; in Japan 134; in Paris 154; and in Frankfurt 163. Two things threaten our competitive position. One of them is stamp duty and the other is the burden of regulation. Everyone should have regulation, but over the past few months we have been thinking about—and I know that Ministers have— how we can make regulation not too expensive and burdensome. That is the balance that we must get right. Clause 2 sets the scene and it would be a better clause if it put the objective of our international competitiveness upfront and not down among the things that we must have regard to.

Jim Cousins (Labour, Newcastle upon Tyne Central)

I remind the right hon. and learned Gentleman that the first of the regulatory objectives set down by the Government is market confidence, a concept which embraces both competition and competitiveness. If the Opposition's new regulatory objective were added, what would a regulator do to deal with a bank that had inadequate capital, but was trading both in the UK and abroad? In that case, the regulator would be faced with a conflict of objectives. That would be wrong. The regulator should focus on market confidence as the single most important objective embracing both competition and competitiveness. It should judge its actions in the light of the need to protect market confidence and not be confused by any other consideration.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The hon. Gentleman might be right in one part of his intervention; I shall wait to find out whether Ministers think that he is. If he is, he has sold the pass—I withdraw that remark, which is not a kindly way of expressing myself. However, he is wrong in the other part of his intervention. If market confidence includes our international competitiveness, it is plainly acceptable to put that up among the regulatory objectives. Therefore, I am delighted to have the hon. Gentleman's support.

Andrew Tyrie (Conservative, Chichester)

The Bill clarifies the meaning of "market confidence" in clause 3, which states: The market confidence objective is: maintaining confidence in the financial system. That is a matter of systemic risk—making sure that the financial system is not imperilled and does not collapse. It has no bearing on whether the financial system is more or less competitive, and no reasonable reading of clause 3 would ever lead one to suppose that it did.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

My hon. Friend is entirely right. Unfortunately, although I would like to think that the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) has made a point with which Ministers can agree, I do not believe that he has. I do not think that there would be any serious problem with disciplining an undercapitalised player in the market. The fact that the FSA had to consider as an objective our international competitiveness could not possibly inhibit its putting out of business a player who lacked sufficient capital. Nothing could damage the UK's international competitiveness more swiftly than significant players in the UK market going down the drain for lack of capital. The amendment of the Bill in this respect is the most important point that we shall discuss today. I should like to think that Ministers will offer to go away and reconsider the matter, and I am quite happy that they should agree to do so without obligation. It is highly desirable that they should think again, even if correction has to wait until the Bill is debated in another place.

Stephen Timms (Labour, East Ham)

Amendment No. 192 refers to the maintenance of competition and promotion of United Kingdom competitiveness. However, the right hon. and learned Gentleman has concentrated so far on the competitiveness aspect. Does he envisage greater importance attaching to that than to competition, which has previously appeared to be the main focus of Opposition concern?

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

That brings us back to a matter of language, and I am grateful to the Financial Secretary for enabling me to clarify the position. As I understand his remarks, the hon. Gentleman uses the word "competition" to mean competition within the United Kingdom as regulated, supervised and controlled by the Competition Commission, the Director General of Fair Trading, and so on. That is important, but that was never the key thrust of the Opposition's concerns regarding competitiveness; obviously, we failed to make our point. There was a period—it may even have extended into this debate—when "competition" and "competitiveness" were used interchangeably. There may have been room for confusion. We support what the Government are doing vis-à-vis the non-distortion of the market by the anti-competitive effects of regulation within the UK market. That is good and detailed and it has my support. However, it does not meet our overall concern, which is that the burden of regulation and the manner of it could damage our international competitive position. That is where further thought is needed, and that is where the Bill needs to be adjusted.

Michael Spicer (Conservative, West Worcestershire)

I may have misheard one of my right hon. and learned Friend's earlier remarks, but I thought I heard him say that the best regulator was competition in the first sense in which the Minister gave it. I understood my right hon. and learned Friend to say that that was at least as important in terms of regulation as international competitiveness.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

My hon. Friend is right. Again, we are into the matter of language. The best regulator is competition in that it keeps businesses up to the mark and makes them provide better products. It possibly makes it less, rather than more, likely that people will be charged for using their access cards in various machines. Competition is plenty of good, healthy businesses competing with one another. It does not matter whether the business is a United Kingdom bank or an American or Japanese bank. In one sense, the healthy effect of competition is the best regulator. However, there is common ground between us that we need regulation as well. That is the subject of the Bill, and in this instance we are discussing the objectives that should be put to the regulators. I am arguing, in accordance with amendment No. 192, that we should make as part of the objectives not only competition in the internal UK sense in which the Minister and I understand it, but our international competitiveness. That is deeply important.

Nigel Beard (Labour, Bexleyheath and Crayford)

The right hon. and learned Gentleman has introduced the international dimension to the debate. Will he say what would happen to the FSA if it went into international negotiations to establish an international regulatory arrangement, if it had at the centre of its objectives the maintenance of competition and promotion of United Kingdom competitiveness? Those with which it was negotiating would say immediately, "This country is not negotiating to establish the integrity of international financial arrangements. It is negotiating to give the United Kingdom a strong competitive edge." The negotiations would therefore fail.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The hon. Gentleman is probably wrong about that, but in any event it is not what we are discussing. If we were setting up an international regulatory system, which is not what we are doing—you will call me to order, Mr. Deputy Speaker, if I go on too long about this—but which to some extent we have under European directives, our objective would at least be to ensure that the international competitiveness of the United Kingdom would not be damaged by that system. The hon. Gentleman can go along with me to the extent that it should be one of our objectives to safeguard—I think that "promote" is a perfectly fair word—our international competitiveness. I understand the point that the hon. Gentleman is making, but I think that he makes too much of it. I stand by the desirability, as I thought we all did, of the United Kingdom financial services market being highly competitive. That is our objective. I shall conclude with the words of Don Cruickshank in his letter to the Chancellor of the Exchequer of 22 July 1999. When asked to look at the international position vis-à-vis the banking sector, he made the following point: Our priority should be to develop a strategy for striking the optimal balance between competition and necessary regulation. In the search for a higher sustainable growth rate for the UK beyond a stable low inflation macro-economic climate, there is in my view nothing more worth while for government to do than to get this balance right. At the moment we have not got it right, and our new clause would help us to do so.

Andrew Tyrie (Conservative, Chichester)

It is annoying to speak after my right hon. and learned Friend because one always finds that he has stolen a little of one's thunder. I had intended to quote the same passage from the Cruickshank report. However, I am sure that I shall find other passages on which to draw. The absence of a countervailing pressure on the FSA to set against the urge to regulate lies at the heart of the our anxieties about the Bill. We have said from the start that stronger provisions to inculcate competition and encourage international competitiveness should be included in it. Despite the Government's new clauses, such provisions will remain lacking. There are three major lacunae. First, the FSA's overwhelming incentive will be to watch its back so that no one accuses it of failing to regulate strongly enough. When Conservative Members said that in Committee, we were accused of simply representing City interests. However, the consumer will pay for excessive regulation to ensure that the FSA watches its back. The consumer always pays when competition is eroded through increased regulation. The failure to strike a balance between regulation and competition, to which my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) alluded, is a central weakness in the measure. The second lacuna relates to the point that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) made a moment ago. It is not sufficiently well understood that competition acts as a regulator. It is often the best regulator. That applies especially to new entrants into a market. The scope for new entry into a market is especially vulnerable to high levels of regulation because the detailed knowledge that is required to get into a market inhibits new entrants. However, new entrants often create greater competition—that is the so-called theory of creative destruction that Schumpeter propounded in the 1930s. He argued that competition was not necessarily achieved through lower prices, but through people entering markets and offering new and better products. My right hon. and learned Friend the Member for North-East Bedfordshire alluded to the third lacuna. It is competitiveness, on which the Bill is almost silent. The Financial Secretary to the Treasury asked an important question, and was thinking his way through to the answer as he listened to my right hon. and learned Friend's response. Improved competition will almost always lead to improved economic performance, but better regulation may make no difference. Indeed, competitiveness could be eroded by regulation that is introduced to ensure that there is no miscreant or bad apple in the barrel. That trade-off goes to the heart of our anxieties. The Government's response has been to deny the fact that there is a trade-off between regulation and economic performance. They claim that perfect regulation will lead to maximum probity and credibility in the market, and to respect for the product from consumers and foreign counterparts. According to that theory, there is no need for checks and balances in the system because there is a happy coincidence of interests between optimal regulation for the prevention of financial crime and misdemeanours, and optimal economic performance. Regrettably, that is not the case. There is a tension between those two objectives and the FSA will have to deal with it—day in, day out. Our concern is that that balance has not been addressed properly by the Bill, which is why we have tabled amendments so vigorously. We believe that the FSA must be required by statute to take that trade-off fully into account, and the only way to achieve that is by including competition in the Bill as an objective. 6 pm Cruickshank's report is important in that respect. I do not know the official Opposition position on it, but I think that it is an outstanding and brief exposition that anyone interested in these matters should read. It talks about striking the right balance—the very balance to which I have alluded. Cruickshank made that a sub-heading of the document and his letter to the Chancellor described the trade-off between the objectives of regulation and economic performance, but I will not detain the House by reading the passage out. The question of whether the Government's new clauses respond adequately to the Cruickshank report and take those concerns into account is crucial. They were tabled only a few days ago. As they deal with the heart of what we have been discussing for months and months, it would have been immensely helpful had they been tabled earlier. The report was published in July, but the competition clauses were not dealt with in Committee until November, so although the Government had ample time, they waited until the Bill was on Report to table new clauses. Conservative Members, the House, the City and the industry all regret that. How far have the Government gone towards meeting Cruickshank's six recommendations? I shall not go through them all, but should refer to two. The most important recommendation is the first. The report unequivocally states: the FSA should have a primary competition objective, in addition to its regulatory objectives. It forms the second, emboldened paragraph of annexe 3—it is crucial. Cruickshank says, more or less, that unless it is implemented, all his other recommendations, whether implemented or not, will be mere sticking plaster to patch up something that will inevitably be inadequate and second best. On page 13, he says: Getting the regulator's primary statutory duties right is essential … A competition objective that is weak relative to the regulator's other objectives is unlikely to be delivered effectively. He makes it clear that his other recommendations would be far less effective without that central objective, but that is exactly the route the Government have taken. They have left competition as a principle and introduced changes to the competition regime without including it in the Bill as a central objective, although they have moved on Cruickshank's other recommendations, reducing the extent of the financial sector's exclusion from general United Kingdom competition law and strengthening Office of Fair Trading oversight. There has been some progress. The Government have failed to take up Cruickshank's unequivocal recommendations on a further crucial question. The report said that the Competition Commission's findings, not those of the Treasury, should be the final arbiter. I remain concerned that the revised new clause leaves much more discretion to the Treasury than initially appears to be the case. The Minister has gone some way towards assuring me about subsection (3)(a), but I remain concerned about the wording and about what "exceptional circumstances" could be taken to mean. The Treasury can decide that there are exceptional circumstances, so that it can overrule—

Melanie Johnson (Labour, Welwyn Hatfield)

indicated dissent.

Andrew Tyrie (Conservative, Chichester)

The Minister shakes her head as if I am getting this wrong. If I am wrong I should be grateful if she would clarify where in the Bill "exceptional circumstances" are explicitly limited so that we can be sure of what the phrase means. Can she do that and go beyond the mere assurances that she has already given us?

Melanie Johnson (Labour, Welwyn Hatfield)

Briefly, I have described how "exceptional circumstances" are to be regarded. I gave the assurance that any reason why the Treasury had to override any proposal or report would be laid before the House and we would expect debate on it. I covered that fully in my earlier remarks.

Andrew Tyrie (Conservative, Chichester)

What assurance do we have that the Treasury cannot define "exceptional circumstances" widely? All we have are the Minister's assurances. We do not have any statutory limitation to the exercise of the Treasury's power in this area. I hoped that there would be and I remain concerned about the drafting of new clause 29 as a consequence. The Government's new clauses remain out of kilter with Mr. Cruickshank's central demands. He demanded that the Treasury be kept out of this altogether, but that is not what we have. He said that we should avoid a blurring of responsibility for the delivery of the competition objective, but we have blurring. The competition objective is weakly included in the FSA statement of principles. The OFT is to play a major role, the Competition Commission is to be an appeals system and the Treasury has the power of override, limited by the phrase "exceptional circumstances" which is as yet untested. If the Minister is to reply, I should be grateful if she could clarify one point. As I understand it, under the Competition Act 1998, a ruling by the Competition Commission may go to appeal on a point of law. Would the FSA have the right to appeal against a Treasury ruling in the event of there being a dispute on a point of law, or is the FSA excluded from access to the courts in this area? More generally, I remain concerned that Cruickshank's primary recommendations have been wholly ignored. As he himself makes clear, without that first basic building block of competition as a primary objective, most of his other recommendations will be difficult to implement. Furthermore, in the long run, the dynamic effects of the inadequate treatment of competition could be profound for the City. He points to the danger of damage to the City through inadequate consideration of the dynamic effects of weakened competition. Finally, as my right hon. and learned Friend the Member for North-East Bedfordshire said a moment ago, the FSA is required to have no more than "regard to" the United Kingdom's competitive position. That is hopelessly inadequate. Of all the provisions in the Bill, that is the one that I hope we will find legislative time to put right when we return to power, which we will.

Melanie Johnson (Labour, Welwyn Hatfield)

It will happen a long time from now, then. It has been difficult at times to understand whether the Opposition's view is that competition should become an objective, or that competitiveness should. Conservative Members have each advanced different arguments. I am left uncertain as to what the official Opposition view is. May I explain the Government's view?

Howard Flight (Conservative, Arundel and South Downs)

rose—

Melanie Johnson (Labour, Welwyn Hatfield)

Clearly, I am about to get clarification. I am grateful to the hon. Gentleman.

Howard Flight (Conservative, Arundel and South Downs)

Amendment No. 192 sets out that which we wish to add as an objective: competition and competitiveness.

Melanie Johnson (Labour, Welwyn Hatfield)

The amendment sets out what the hon. Gentleman wishes to do, but I am still not clear what Conservative Members' real position is and what the real Opposition view is. Let me tackle both questions. If competition is an FSA objective, it will, in effect, become another competition authority. It will also have competing objectives. In the event of conflict, it would go either down a particular path, or down no particular path, under certain conditions. It will leave the FSA in considerable difficulty as it carries out the objectives. It is not appropriate for competition to be an FSA objective. I endorse the enthusiasm with which the hon. Member for West Worcestershire (Sir M. Spicer) pushed for recognition of the importance of competition and competitiveness. The Government recognise both the importance of competition and the value of competitiveness. We think that they are both important. None of us in the Chamber disagrees about that. We disagree about what the effect of including competition in the FSA's objectives would be and what the effect is of where it appears: under the principles in clause 2(3). We looked at the matter at considerable length. We responded to the Cruickshank review in July. A press release was issued when the matter was discussed in Committee in November. Don Cruickshank said: I am not wedded to any particular means of achieving this, and I will welcome any changes to the Bill which deliver the outcome in practice. The only issue has been how to deliver that in practice. There is no disagreement about the fact that competition is important and must be an issue that the FSA has regard to in all its dealings as a regulator.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The Minister said that if competition and competitiveness were made an objective, it would make the FSA a competition regulator and a competition authority. Will she please reconsult her advisers and inform herself that that is nonsense? It would have no such effect. It would not put the FSA into the position of the Competition Commission, which seems to be what she fears. It would do what I am pleased to hear there is common ground about: put the competitiveness of the UK financial service markets in the Bill as an objective.

Melanie Johnson (Labour, Welwyn Hatfield)

I do not agree with the right hon. and learned Gentleman on that, and I shall not change my comments on the matter. We already have a body whose prime responsibility is to ensure that competition is engaged in wholeheartedly in all sectors of the economy, and that body is the Competition Commission. The commission, not the FSA, has that role and those functions. The Government do not disagree with his point that the FSA must have regard to competition. As I said, we considered different formulations of "regard to".

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The Minister said that she disagrees with what I have said. Will she examine the record, write me a letter explaining why she disagrees, and place a copy in the Library?

Melanie Johnson (Labour, Welwyn Hatfield)

I shall consider the right hon. and learned Gentleman's request, although I am not sure that any useful purpose would be served by my complying with it. As I explained, if there were a better formulation of "must have regard to", it is certainly not "seek to", as that would weaken the provision's force. We have considered how best to address the competition issue in the formulation of the Bill's wording. As clause 2(3) states, in conducting its business, the authority must have regard to various specified principles. We believe that the strength of the injunction and the duty imposed on the authority by the subsection will ensure that, in seeking to achieve its objectives, the authority will give full consideration to all aspects of its duty, including the particularly contentious issue of competition and competitiveness.

Michael Spicer (Conservative, West Worcestershire)

I am grateful to the Minister for giving way, not only because of the lateness of the hour, but because, earlier she said that she was on my side—which seemed to worry the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) a bit. However, if there are various bodies with different objectives, how will we decide who should win?

Melanie Johnson (Labour, Welwyn Hatfield)

We drafted the clause with that in mind. Many hon. Members expressed an interest in the United Kingdom's international competitiveness. Clause 2(3)(e) provides that, in performing its duties, the authority must have regard not only to competition, but to the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom". That requirement has now been encapsulated and included in the principles governing how the FSA does its business. It also addresses the issue of whether it is appropriate to impose such an obligation on the FSA. Some aspects of competitiveness are the Government's responsibility. There are aspects of competitiveness that are the industry's responsibility. The Bill encapsulates the responsibilities of the FSA in that regard. The hon. Member for Arundel and South Downs (Mr. Flight) called the Competition Commission the piggy-in-the-middle in this matter. That is most unfair. The Competition Commission will take the place occupied by Ministers in the competition scrutiny regime. It, rather than Ministers, will take the final decision on whether a rule or practice is anti-competitive, or whether it is justified. The commission's decision will stand and will be put into effect, unless exceptional circumstances—some of which I set out earlier—lead Ministers to a different conclusion. Far from being the piggy-in-the-middle, the Competition Commission will be the final arbiter of competition matters. Finally, several hon. Members have said how important it is to get the right balance between competition and competitiveness, and regulation. All have their proper role to play, but it is misleading to suggest that good regulation is anything other than an asset. The circumstances governing the competitiveness of the City of London are important, but so is the very good regulation in the UK, which continues to assure the City's position in the global market.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

The Minister is disagreeing with Don Cruickshank, the whole point of whose report was to tell the Government that the "have regard to" formula in clause 2(3), on which she is relying, is too weak. The report called on her to extend the regulatory functions in clause 2(2) to cover the requirements set out in clause 2(3).

Melanie Johnson (Labour, Welwyn Hatfield)

As I said earlier, in his comments on his interim report and the Bill, Don Cruickshank said that he was not wedded to any particular means of achieving the balance between competition and competitiveness. We do not believe that the Opposition amendments would be useful in that regard, whereas we consider that the Government amendments will achieve the balance that we seek. They give full force to the role of competition when the FSA considers how it should perform its business. I commend the measures to the House.

David Heathcoat-Amory (Conservative, Wells)

The debate has been about a fundamental aspect of the Bill that goes to the core of what the FSA is set up to do. The Minister's responses have not measured up to the importance of the subject, and there has been no real attempt to answer the many questions of Opposition Members. The Liberal Democrats tabled one sad little amendment that was not selected. That lack of enthusiasm is not surprising: almost no Liberal Democrat Members turned up to the sittings of the Standing Committee, which ran from last July to just before Christmas. Given that they could find no one to man the Benches then, it is hardly surprising that none has intervened in the debate. But given that that party is inclined to lecture the rest of us about the need for parliamentary scrutiny and all the changes it wants to improve it, it is treating the House with some contempt when it does not bother to put in the hours and the work to hold the Government to account on a Bill of this importance. The Minister started her last speech rather unfortunately by saying that she was not clear whether we supported competitiveness or competition, when it is perfectly clear in our amendments, particularly amendment No. 192, that it is both. All my right hon. and hon. Friends who have spoken have made perfectly clear their concerns about both. If the hon. Lady has not understood our position on that, she cannot have been listening to us. It is really quite simple: we want to elevate the importance of competition at home and the maintenance of international competitiveness to being an objective of the FSA. At present they are referred to as principles to which it must have regard. We are trying to do so on behalf of consumers at home, who will be better protected by a fully competitive market, and the million or so people who work in the industries concerned, whose jobs depend on maintaining international competitiveness. This is a vulnerable, fragile market in a ferociously competitive global environment. Nothing that the regulator does must needlessly undermine that competitiveness. Therefore, it is essential that it be elevated from being simply a principle to which the authority must have regard to an objective that must be pursued. That is why Mr. Cruickshank in his report emphasised the importance of making competition an objective in the Bill. Instead of that comparatively simple approach, the Government now wish to erect a fantastically complicated bureaucratic system, whereby supposed inadequacies in the Bill and in the way in which the FSA exercises its authority on this subject are referred to the Director-General of Fair Trading, then to the Competition Commission and then to the Treasury, which will have the final say, and then back to the authority to make the changes. How much better it would be to put in the Bill the duty, the obligation, the requirement, the objective of competition so that the FSA can do it right at the start.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Does my right hon. Friend agree that this is all pointless on the key question of international competitiveness, because under the Competition Act 1998 none of these important bodies has any role in that repect whatsoever?

David Heathcoat-Amory (Conservative, Wells)

My right hon. and learned Friend reminds me of that essential point. International competitiveness is nothing to do with the authority's duty, so that would go entirely by the board.

Jim Cousins (Labour, Newcastle upon Tyne Central)

rose—

David Heathcoat-Amory (Conservative, Wells)

I hope that the hon. Gentleman will forgive me if I do not give way. I am concluding. To express our dismay over the way in which the whole issue of competition has been handled, we shall divide the House on new clause 27, as a mark of our suspicions and doubts not only about the new competition authority, but, more important, about the Government's wholesale rejection of our alternative approach, which would be simple and which has the support of outside commentators and experts, including Mr. Don Cruickshank. We believe that a Division is essential to demonstrate those points.

CONSIDERATION BY COMPETITION COMMISSION

ROLE OF THE TREASURY

MISLEADING THE DIRECTOR GENERAL OF FAIR TRADING

RESTRICTIONS ON POWERS OF TREASURY

David Heathcoat-Amory (Conservative, Wells)

I beg to move, That the clause be read a Second time.

Michael Martin (Deputy Speaker, Glasgow Springburn)

With this it will be convenient to discuss amendment No. 52, in clause 372, page 194, line 37, leave out— other provision of this Act and insert— provision of this Act other than section (Restrictions on powers of Treasury).

David Heathcoat-Amory (Conservative, Wells)

The new clause and amendment No. 52 are important because they would restrict the power of the Treasury. The Bill would subject the FSA to certain restrictions. As we have heard in a previous debate, the authority would be given objectives and principles to pursue and by which it would have to abide. However, those provisions would not be binding on the Treasury. The Treasury has considerable powers under the Bill. In earlier debates, some Labour Members complained about the Treasury's power of appointment over certain individuals and members of the authority itself. If those hon. Members believe that the Treasury should be constrained in the exercise of its powers, they have the chance to join us in supporting a new clause and an amendment that would do so. The Treasury has major powers; for example, to grant exemptions under the financial promotion regime, and to specify what are regulated activities. Furthermore, it can exempt professional firms, such as lawyers and accountants, from the provisions of the Bill. Those wide-ranging powers are best summed up and illustrated by clause 372, which is the subject of the new clause and the amendment. Clause 372 states: The Treasury may by order make such incidental, consequential, transitional or supplemental provision as they consider necessary or expedient for the general purposes, or any particular purpose, of this Act or in consequence of any of its provisions or for giving full effect to it. That is a Henry VIII clause. The Treasury is given the power to alter primary legislation by the use of orders. We have debated the inadequacy of the scrutiny of the House in respect of such orders, so it is important further to constrain the Treasury in that regard. Even Henry VIII would have been jealous of clause 372. Henry VIII clauses are so called because in 1539 Parliament passed the Act of Proclamations, which authorised the use of proclamations as an alternative to statute law. I do not know the circumstances in which that Act was passed. I imagine that Parliament felt it was better to regulate matters in some way, even though it could hardly have approved of that exercise of authority by the king. Proclamations issued by the king were always fairly minor and never affected life or property, whereas the orders that can be brought forward under the Bill may affect property in the form of people's money and investments. Proclamations in the middle ages were generally not enforced or the courts were reluctant to enforce them, whereas the Bill will be rigorously enforced. [Interruption.]

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. There is a great deal of private conversation in the Chamber and beyond the Bar of the House. Perhaps hon. Members will come to order and allow the right hon. Gentleman to continue.

David Heathcoat-Amory (Conservative, Wells)

Clause 372 goes wider than any of the powers available to Henry VIII. It is important that the House wakes up to the potential for, if not abuse, at least the possibility that this primary legislation could be altered by orders and statutory instruments in a way that goes entirely unscrutinised. New clause 1 makes it clear that orders must not restrict competition beyond protecting consumers or pursuing the Bill's other objectives. That would be a useful counterbalance to the inevitable tendency of all regulators to over-regulate and of all regulatory systems to end up with excessive costs and regulation. The Government were reluctant to accept any of our earlier amendments for elevating competition to one of the Bill's objectives. This proposal is a useful alternative and I commend it to the House.

Stephen Timms (Labour, East Ham)

I understand the thinking behind new clause 1 and have some sympathy with what it seeks to achieve. It is certainly not our practice or intention to make regulations that would in any way damage competition, competitiveness or innovation. There are a number of difficulties with new clause 1. At the heart of the problem is that its effect could not be determined until the Bill's powers were exercised. The European Union has some jurisdiction over matters covered by the Bill. Much of the Bill, to a greater or lesser extent, delivers on or is constrained by EU directives and treaties. We are required, for example, to bring within the scope of regulation any activities covered by insurance directives—life and non-life—that are undertaken by qualifying institutions. The same is true of investment and banking. We have no choice in the matter, so the new clause could cause difficulties. Another example is where the purpose of the regulations might not properly be described as protecting consumers or maintaining confidence, but there was some other good reason for proceeding. The most obvious example is exercising powers in a way consistent with the FSA's objectives under the Bill that would prevent financial services business in the UK being used in connection with financial crime. That is not provided for in the new clause. The right hon. Member for Wells (Mr. Heathcoat-Amory) referred to the breadth of clause 372, but his fears are not well founded. It is clear that the power is to make incidental, consequential, transitional and supplemental provision to deal with minor things where it is necessary or expedient for the purposes of the Bill, or to give effect to it. I do not agree that Henry VIII would have been envious of that power, as the right hon. Gentleman suggested.

Andrew Tyrie (Conservative, Chichester)

Will the Minister give way?

Stephen Timms (Labour, East Ham)

No, I must press on. I hope that I have been able to set out some of the difficulties with the Opposition's proposal. The Bill has been carefully formulated to ensure that the extent of the Treasury's powers is clear. It is not our intention to impose any more burdens on firms than is necessary, and wherever possible, we consult on proposals to make regulations so that those affected by them have an opportunity to comment on and influence them. The powers in the Bill are no different from the order and regulation powers under any other Act of Parliament, and I hope that that gives Opposition Members the reassurances that they seek.

Howard Flight (Conservative, Arundel and South Downs)

The House may not be aware that the Bill, which proposes to set up and empower the FSA, reserves important powers to the Treasury—the most important, perhaps, is designating what are to be authorised and regulated activities. However, the Treasury's powers to exempt matters concerning promotion will be important. We have looked at how the Treasury powers interrelate to the objectives and principles of the Bill. Clause 1 has been worded so as to pick up the relevant references, and it deals, quite appropriately, with the principles of not damaging competition or innovation. Competition is defined as both domestic competition and international competitiveness, and the Bill picks up the key objectives where the Treasury has power. We do not accept the Minister's argument concerning technical difficulties with subjecting the Treasury to the same basic objectives and principles relevant to its powers, as those objectives and principles apply to the FSA. If the Minister has sympathy with the objectives, what other proposals do the Government have to address them? As things stand—particularly where items of secondary legislation are dealt with by negative resolution, rather than positive affirmation—there is no guarantee that what the Treasury does will stick within the objectives and principles. The amendment proposes essentially to apply the terms of clause 1 to the Henry VIII clause—which, to some extent, may limit its powers, but would tie the two together. We feel that that would address some incomplete business within the Bill, which is unsatisfactory without it. The Government have come up with no other method of tying the Treasury in with the rest of the Bill. However, this is not a matter that we would wish to put to a vote. Rather, we would hope to see what the other place could do to tie in the matter in a way that the Government would find acceptable. Unless the matter is addressed, the two matters do not tie together—we have the FSA bound by relevant objectives and principles, while the Treasury is not so bound.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Does the right hon. Gentleman wish to withdraw the motion?

David Heathcoat-Amory (Conservative, Wells)

I beg to ask leave to withdraw the motion. Motion and clause, by leave withdrawn. Further consideration adjourned.—[Mr. Sutcliffe.] Bill, as amended in the Standing Committee, to be further considered tomorrow.